The Mittal brothers-led Ispat Industries plans to repay Rs 800 crore of debt in the next financial year to evade the risk of conversion of a part of its debt into equity by creditors. The company has total debt of Rs 7,000 crore lent by 14 creditors, who have got shareholders’ approval to convert a part of this into equity in case of default.
“Ebitda (operating profit) is showing a sign of growth; this has given us confidence to generate enough cash to repay a part of the debt,” said Anil Sureka, executive director, finance.
The company almost tripled its Ebitda to Rs 313 crore in the second quarter from the Rs 106 crore reported in the previous one. “The demand cycle is coming back, pushing the price for steel; this is giving steel companies the pricing power,” said an analyst with a foreign brokerage who did not wish to be quoted. The company is also in the process of improving its performance, because in the first quarter it had shut its blast furnace. It was recommissioned in the later part of the first quarter. The plant is now operating at almost at 90–95 per cent capacity.
In case of default of repayment, the lenders of Ispat could subscribe to preferential shares worth Rs 665 crore at Rs 19.38 per share to acquire a 19.53 per cent stake in the company. At the annual general meeting in September, Ispat shareholders approved the lenders’ plan to acquire the stake. With this, the creditors’ holding will increase to 30.39 per cent from 10.86 per cent. The promoters, including the two brothers of London-based steel tycoon L N Mittal, hold 41.14 per cent stake in the company. With the increase in stake of lenders, the promoters will lose control, said sources in the industry.
The company is planning a qualified institutional placement (QIP) of Rs 500 crore for the implementation of projects for growth purposes and to bring down the cost substantially. Sources said part of amount could be used for reducing the debt.
According to the World Steel Association, steel consumption is likely to grow by more than 9 per cent in 2010 on the back of Chinese growth. In India, it says, consumption of the metal is expected to grow by 8.9 per cent in 2009, followed by a 12.1 per cent increase in 2010.
Shares of the company closed at Rs 18.8 each on the Bombay Stock Exchange on Friday, the last trading day. It had a market capitalisation of Rs 2,298 crore on the day.