AION offers to recast Uttam Galva Steels’ debt2 min read . Updated: 03 Apr 2017, 12:11 PM IST
AION has proposed that Rs1,200 crore remain as bank loans on the company's books and outstanding loans of Rs4,300 crore be converted
Mumbai: AION Capital, which has submitted a bid to acquire a majority stake in troubled Uttam Galva Steels Ltd, has proposed to recast the company’s outstanding debt of close to Rs5,500 crore into four parts, two people directly aware of the development have said.
The India-focussed special situations fund has proposed that Rs1,200 crore remain as bank loans on the company’s books and outstanding loans of Rs4,300 crore be converted into equity, debenture and convertible debentures.
While the lenders to Uttam Galva, a consortium of 18 banks led by State Bank of India, are yet to decide on AION’s bid, the people cited above said AION has offered to begin repayment of debt from day one if the lenders agree to the fund’s offer.
“For the loan repayment, AION has sought a repayment schedule that may vary between 7 and 15 years depending on the turnaround and cash flows of Uttam Galva," said one of the two persons, requesting anonymity.
Though distressed asset transactions like these typically involve banks taking a so-called haircut on the value of the assets on sale, the people cited above said AION’s offer does not involve banks taking a haircut and instead offers the possibility of a significant upside in the event of a successful turnaround of the company. A haircut is the term used for the sacrifice made by banks on the interest and principal loan amount they are owed.
“The Rs1,200 crore debt is the only fixed component in AION’s offer while the rest will be moving parts depending on certain milestones related to the company’s performance," said the second person cited above.
Mint had reported in March last year, citing people aware of the matter, that lenders to Uttam Galva had asked the company’s promoters to consider bringing in a new investor to inject fresh equity into the company. Subsequently, the company hired SBI Caps, the investment banking arm of State Bank of India, to look for an investor after its lenders insisted on fresh investment before a debt recast, Mint reported.
An email sent to Uttam Galva remained unanswered. A spokesperson for AION Capital declined to comment.
The people cited above added that in the event of the PE fund taking over the company, the current management under chairman Rajinder Miglani is likely to continue managing Uttam Galva’s daily operations.
AION plans to bring in global turnaround experts to manage the strategy and growth of Uttam Galva but it will let the current management run the company, the people said.
Incorporated in 1985, Uttam Galva is one of the largest producers of galvanized and cold-rolled steel in India. The company reported a consolidated loss of Rs1,555.43 crore for 2015-16. In the year before, the company had a consolidated net profit of Rs21.11 crore, while it reported a profit of Rs27.47 crore for 2013-14. In June, the company referred itself to the Board for Industrial and Financial Reconstruction (BIFR) after it eroded its net worth.
In financial year 2015-16, the stand-alone net worth of Uttam Galva was at Rs433.42 crore, a 77% decline from Rs1,930.03 crore in financial year 2014-15.
CNBC-TV 18 reported in March this year that Edelweiss ARC also bid for a controlling stake in Uttam Galva Steels and has offered 15% of the loan as upfront payment and the balance via security receipts.