Top lenders have exposure of about Rs 4,000 crore in Odisha-based Electrosteel Castings, owner of the only block to have started operations among the 57 whose allocations were questioned by the government’s auditor.
Electrosteel’s block is among the 29 being reviewed by an inter-ministerial group (IMG). The company is said to have already presented its case to the group.
While the company says banks’ total exposure to it was Rs 1,792 crore as on March 31, regulatory filings show a significant amount of charges have been added after that. According to the filings, top public sector lenders with significant exposure to the company include Punjab National Bank, Bank of Baroda and Bank of India. Among private sector banks, ICICI Bank and HDFC Bank have significant exposure to Electrosteel.
| MINE PERIL Electrosteel was established by Ghanshyam Kejriwal in 1955. His sons Umang and Mayank manage the company as joint MDs. Here are the charges created by lenders against Electrosteel’s assets | |
| Lender |
Rs crore |
Corporation LIMI
Source: Ministry of Corporate Affairs
Non-banking institutions such as SREI Infrastructure Finance and IL&FS have also lent to the company.
The exposure of these institutions was learnt through an analysis of Electrosteel’s filings with the Registrar of Companies by Corporate Professionals, a New-Delhi-based advisory, on a request by Business Standard.
Axis Trustee and HSBC have also created charges against external commercial borrowings of about $200 million and $77 million, respectively, showed filings with the ministry of corporate affairs. According to these, against the loans, the lenders have created charges on immovable and moveable property, current assets, as well as future earnings of the company. All these charges against Electrosteel’s assets have been created after the allocation of the coal blocks in 2005, according to the filings.
The filings were updated up to August. In an emailed response, an Electrosteel spokesperson stated, “According to the audited balance sheet of the company, as on March 31, the total exposure of banks was Rs 1,792.30 crore, including Rs 450 crore on account of the Parbatpur Coal Block.”
The exposure in Electrosteel offers a glimpse of the risk to the financial system the potential cancellations of these allocations pose. While the Comptroller and Auditor General (CAG) has said irregularities in the allocation of these 57 coal blocks led to a loss of Rs 1.86 lakh crore to the exchequer, the government has argued there was no actual loss, as long as the coal was yet to be mined.
Electrosteel is the sole exception to the government’s argument, as it has already mined coal from the block allocated to it. According to the CAG report, Electrosteel’s Parbatpur block in Jharkhand, allocated in July 2005, is the only producing block among the 57.
Opposition parties have been demanding the cancellation of all coal block allocations by the United Progressive Alliance government. However, some have said the move would pose a risk to the country’s financial system.
The Electrosteel spokesperson added there was no dispute regarding the coal blocks allotted to the company.
“Electrosteel has been allotted two coal blocks, namely the Parbatpur coal block (independently) and the North Dhadhu coal block (jointly) and, to the best of our knowledge, there is no dispute in respect of these two coal block. Of the 57 blocks in question, the Parbatpur coal block is the only one that started production.”
For the moment, bankers are waiting. “We have offered them loans against the power plant. These are fully secured advances. We have not seen any stress (on this portfolio) so far,” said a senior official of a non-banking financial company.
“We will have to see how the situation plays out before taking any decision. Right now, it is premature to comment on this,” said a senior official with a foreign bank that has exposure to the company. Public sector bank officials declined to comment on client-specific details.
A recent report by Crisil Independent Research estimated the fair value of the Electrosteel stock at Rs 45. It rated the stock 3/5 on fundamentals and 5/5 on valuations, suggesting it had a strong upside, compared with the current market price of Rs 18 a share. The company’s sales rose four per cent annually, driven by an increase in realisations. But profitability declined on account of higher power costs, foreign exchange losses and low other income. The company’s management expects it to secure stage-II clearance for the iron ore mine from the ministry of environment and forests soon. “We expect production from the mine to start in the fourth quarter of FY13,” Crisil analysts Mohit Modi, Pravesh Rawat and Vishal Rampuria has stated in the September 3 report.
The report added, “We have valued the standalone business by assigning price/earnings of 4x FY14 estimated earnings, at Rs 33 per share. Electrosteel’s 48.54 per cent stake in Lanco Industries and 34.81 per cent stake in Electrosteel Steel are valued at a 25 per cent discount to the market price, at Rs 1.2 a share and Rs 10.1 a share, respectively. Consequently, our fair value is Rs 45 a share.”
The analysts, however, did not mention the CAG report or its impact on the company’s business. When contacted, Crisil declined to comment on the CAG report on coal block allocations.
Electrosteel was established in 1955 at Rajgangpur, Odisha, by Ghanshyam Kejriwal. Today, his sons Umang and Mayank Kejriwal manage the company as joint managing directors.
