Banks may extend Bhushan Steel's nearly Rs 37,000-cr loan's maturity

RBI's provision for 'flexible structuring' of long-term loans, allowing banks to extend such loans to up to 25 yrs with a view to unblocking infra projects, may come to Bhushan's rescue

Banks owed nearly Rs 37,000 crores by Bhushan Steel Ltd could extend the maturity of the steelmaker's debt under a Reserve Bank of India scheme that would spare the lenders from booking hefty provisions, bankers said.

Bhushan Steel, the sixth-biggest steel producer in India by capacity, ran into trouble after its managing director was implicated in a bribery case last year. The company has denied wrongdoing, but the crisis raised concerns about its ability to manage a heavy debt burden and it has since been in talks with its more than two dozen lenders.

Bhushan has been seen as a case that is emblematic of the large-scale lending in recent years that has left India's state banks in particular with bad debt piles they are struggling to reduce. Many have preferred to extend more cash than to add to already costly provisions for soured loans.

"Now EBITDA (earnings before interest, tax, depreciation and amortisation) is low. It's not sufficient to service the very high debt which they have taken," said a senior executive at a state-owned bank that is part of a banking consortium owed money by Bhushan.

"We (the consortium) may take over their loan and give it for a longer period as permitted (by the Reserve Bank of India). That is one option," said the banker, adding other possibilities were also being considered.

The RBI last year came out with guidelines for "flexible structuring" of long-term project loans, allowing banks to extend such loans to up to 25 years with a view to unblocking infrastructure projects and relieving the weight on heavy industry and manufacturing.

A longer repayment period would also help creditor banks, led by State Bank of India and Punjab National Bank , avoid treating the debt as bad, a category that would require higher provisions.

Despite Bhushan's already heavy debt, banks say they will approve fresh working capital loans as they fear the operation of its main plant will be hurt by a funding crunch that will affect the company's debt-servicing ability and its value.

"It's a very good asset," said another senior banker. "The plant will stop if you don't lend to them. Then what happens to the exposure?"

Bhushan, which has started selling non-core assets to raise funds, is also looking to bring in a strategic investor, one of the bankers said.

The company said in a stock exchange filing on Wednesday that it was in talks with lenders for "realignment of debt maturity profile". It did not elaborate.

Bhushan's finance chief Nittin Johari declined to comment on the possibility of any strategic investor.

State Bank of India (SBI) said last month the banking consortium was exploring several options over the Bhushan loan and that it did not expect it to turn sour. SBI has lent almost Rs 6,000 crores to the steelmaker.

($1 = 62.6900 rupees)