Essar Steel wants oversight panel to vet debt recast plan

RBI should take into account Essar's improved finances, Rs 3,500-cr interest payment to banks

Essar Steel wants the Reserve Bank of India (RBI)- appointed oversight committee (OC) to vet its loan recast proposal based on its financial performance in 2016-17. 

The steel producer has demanded that the OC take into account its interest payments of Rs 3,500 crore to the lenders, higher capacity utilisation at 80 per cent in its steel plant and a resultant 42 per cent rise in its earnings before interest, tax, depreciation and amortization (Ebitda) in FY17. 

Essar Steel was shortlisted by the RBI among the 12 companies to be referred to the National Company Law Tribunal (NCLT) for action under the Insolvency and Bankruptcy Code (IBC), based on the company’s performance in 2016, when the steel sector was in turmoil.

According to a top official of the Essar group, the steel company moved the Gujarat High Court after it was “arbitrarily” clubbed with 11 other companies, despite its loan recast plan pending with the lenders for the past 18 months.  

“We just want the RBI to give us six months, like others, so that we can take our debt recast proposal to the OC. If the committee is not happy with our proposal, then it can send us to the NCLT,” the official said. 

He added that no opportunity was given to the company to present its case by the central bank. The firm has invested Rs 50,000 crore in setting up the 10.6 million tonne per annum plant in Hazira, Gujarat, and has around Rs 30,000 crore of debt.

The official said since the Centre diverted the gas allocated to its Hazira plant to other parts of India following a 2011 Supreme Court order, it lost a whopping Rs 26,000 crore till March 2016, hitting its financials hard. It was only after gas prices fell and it started importing cheap gas that its financial performance improved, the official said, adding that the higher import duty on Chinese steel also helped the company improve its performance.  

According to the official, before sending the company to the NCLT, the RBI should have taken into account its financial record for FY17, and if any resolution had been undertaken by banks with the company, and whether there was an agreement to resolve the NPA issue. 

The official also felt that banks could have also been asked for their opinion as their representatives on the company's board had cleared the loan recast proposal. The company was compelled to move the court as it did not get a chance to present its case, the official said.

The Gujarat High Court will hear the Essar case on July 7.