Active Stocks
Tue Mar 19 2024 12:10:55
  1. Tata Consultancy Services share price
  2. 4,018.50 -3.05%
  1. Tata Steel share price
  2. 148.25 -0.90%
  1. Bharti Airtel share price
  2. 1,232.60 0.62%
  1. Power Grid Corporation Of India share price
  2. 260.35 -1.75%
  1. ITC share price
  2. 410.25 -1.71%
Business News/ Industry / Banking/  Uttam Galva offers 51% of outstanding loan to avoid asset auction
BackBack

Uttam Galva offers 51% of outstanding loan to avoid asset auction

Uttam Galva has offered to pay Rs2,884 crore upfront to settle dues of all lenders and take the company out of insolvency proceedings

If Uttam Galva Steels’ proposal is accepted, lenders would have to take a haircut or write-off 49% of the dues. Photo: BloombergPremium
If Uttam Galva Steels’ proposal is accepted, lenders would have to take a haircut or write-off 49% of the dues. Photo: Bloomberg

New Delhi: Uttam Galva Steels Ltd has offered to settle the Rs5,654 crore loan default by paying 51% the amount upfront to public sector banks so as to abort the auctioning of the company’s assets.

The company, which is part of the Reserve Bank of India’s (RBI) second list of loan defaulters who have been referred to the bankruptcy tribunal for insolvency proceedings, on 15 March wrote to the State Bank of India (SBI), proposing a “one-time settlement" of all dues of lenders “through an upfront payment mechanism".

SBI is the largest of the 18 banks which have to recover Rs5,654 crore from the company. Uttam Galva has offered to pay Rs2,884 crore upfront to settle with all of them and take company out of insolvency proceedings.

Calls made to Uttam Galva managing director and chief executive officer (CEO) Anuj R. Miglani for comments, remained unanswered. According to the 5-page letter, reviewed by PTI, the company proposed “a one-time settlement (OTS) of the dues of lenders to the extent of 51 per cent of the outstanding claims as on the date of NPA, ie Q1FY17".

SBI has the highest dues at Rs1,529 crore followed by Canara Bank—Rs 857 crore and Punjab National Bank—Rs 660 crore. If the proposal is accepted, lenders would have to take a haircut or write-off 49% of the dues.

It may also lead other companies to file similar settlement applications with their lenders, stalling the insolvency and bankruptcy proceedings initiated against 12 big loan defaulters. In the letter to SBI, Uttam Galva said its loan account had turned into an non-performing asset (NPA) during Q1 of 2016-17 fiscal year due to adverse operating conditions.

“Being an OTS and not debt restructuring, the proposal doesn’t fall under the requirements specified in the RBI guidelines of February 12, 2018 (on insolvency and bankruptcy proceedings). Hence, the procedure for debt restructuring mentioned in the circular such as independent credit evaluation etc may not be required," Uttam Galva has said.

Stating that its proposal has minimum payment risk for the lenders as the entire amount is paid upfront, the company said that since the account has already been classified as D1 by the lenders and referred to National Company Law Tribunal (NCLT), 50% provisioning must have already been done by lenders.

“In this case, an OTS of 51 per cent would not adversely impact the financial performance of the lenders," it said. “We once again request lenders to consider this proposal as it is in the best interest of all the stakeholders."

In future, “we assure you our complete cooperation in all the matters and reiterate our commitment to address all issues to your full satisfaction to the best of our ability," it added. Stating that the company has tried for a resolution in “all possible manner", the letter said lenders neither accepted a proposal to bring in private equity investor AION Capital Partners nor did they agree to a strategic debt restructuring (SDR) offer.

Additionally, “the company management entered into active discussions with various investors including Liberty group, Mitsubishi (Japan) and other financial investors from Middle-East. However, none of these investors evinced any further interest in the company and hence, no proposal was submitted by them in this regard," it said.

Uttam Galva said the company was referred to NCLT for initiation of corporate insolvency resolution process (CIRP). “However, based on various reports by experts, it has been noticed that the CIRP mechanism has not been a successful recovery mechanism for lenders too, as the recovery has been less than 34 per cent of the total outstanding claims. In fact, in certain cases the recovery has been as low as 6 per cent," it wrote.

As of 31 December 2017, out of all the insolvency cases that have concluded, majority of them have undergone liquidation due to lack of interest from investors to offer an amount higher than the liquidation value.

“Hence it can be said that the CIRP mechanism has not been beneficial to the lenders in getting better recovery from the NPA assets," the company added. Giving its history, Uttam Galva said it has been in operation since 1985 and remained a top-tier secondary steel producer in India since then.

The company has successfully weathered financial stress faced by the steel industry in the past (including the 1998-2002 downturn when majority of steel players had to undergo debt restructuring in 2001-02). “The company has maintained an impeccable track record of timely payment of all its financial obligations," it said.

“However, the sectoral issues faced by Indian/ global steel market in 2015-16 had hit the company’s financial performance very hard. “Even during these adverse operating conditions, company consistently strived to meet its financial commitments to lenders until mid-2016, but later the account became NPA with all the lenders during Q1 FY16-17," it added.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 19 Mar 2018, 08:04 PM IST
Next Story footLogo
Recommended For You
Banking Stocks
₹1,061.35-0.99%
₹1,446.20.17%
₹1,081.2-0.02%
₹120.05-1.71%
₹730.7-0.38%
Switch to the Mint app for fast and personalized news - Get App