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Mumbai: Uttam Galva Steels Ltd, which makes cold-rolled and galvanized steel, has referred itself to the Board for Industrial and Financial Reconstruction (BIFR) after it eroded its net worth.

The BIFR filing will prevent lenders from initiating legal proceedings against the company.

In financial year 2015-16, the standalone net worth of Uttam Galva was at 433.42 crore, registering a 77% decline compared to 1,930.03 crore in financial year 2014-15.

In a filing to National Stock Exchange (NSE), Uttam Galva Steels said that BIFR has registered the reference made by the firm under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, in a letter dated 13 June.

The audited accounts for the year ended 31 March revealed that the accumulated losses of Uttam Galva had exceeded its net worth and hence the board of the company formed an opinion that the firm has become a sick industrial company and, therefore, it is required to make the reference to the BIFR, it said.

Uttam Galva reported a consolidated loss of 1,555.43 crore for 2015-16.

In 2014-15, the company had a consolidated net profit was 21.11 crore, while it reported a profit of 27.47 crore for 2013-14.

As of 31 March, the total consolidated debt of the company was at 3,739.44 crore while total standalone debt was at 3,524.84 crore.

Lenders to Uttam Galva Steels had in March asked the company’s promoters to consider bringing in a new investor to inject fresh equity into the company within a month to qualify for further debt, if needed.

In an interview on 1 April, Ankit Miglani, joint managing director for the company, said the steelmaker has hired SBI Caps, the investment banking arm of State Bank of India, to fetch an investor after its lenders insisted on fresh investments before a debt recast.

Miglani was unavailable for an immediate comment on the BIFR filing.

On 22 April, India Ratings and Research Ltd downgraded Uttam Galva Steels to a default rating from its earlier BBB+ rating due to ongoing delays in debt servicing since February.

The steelmaker’s operations had taken a hit due to the 20% safeguard duty announced in September on steel imports because Uttam Galva Steels is an importer of hot-rolled coils which they later convert into value-added products.

In 2010, ArcelorMittal picked up a 34.4% stake in Uttam Galva Steels through a share-purchase agreement, followed by an open offer, in a deal valued at 500 crore. It currently holds 29.05% in Uttam Galva Steels after a share issue in 2012-13.

Miglani in his earlier interview clarified it does not expect ArcelorMittal to increase stake in the company.

With the global slowdown in steel demand and decline in global steel prices, promoters are finding it difficult to rope in strategic investors to bail out debt laden-steel firms.

Essar Steel India Ltd, Electrosteel Steels Ltd and Bhushan Steel Ltd are some of the steel companies where the promoters or lenders have been on the look out for a strategic investor.

Jayanta Roy, senior vice-president at ratings firm Icra Ltd, said government actions on curbing imports into the country would be key to determine if more steel companies will follow suit.

“Margins for steel companies have improved from what they were six months back. Steel prices have seen some improvement since February 2016 and so have margins for steel companies, which we expect will reflect in the first quarter of this financial year," he said.

“However, even as the profitability improves, balance sheet pressures continue. In addition, those with a chunk of debt repayment coming up will see more stress. Going forward, government actions to curb imports and fresh capacity ramp-ups would be key to watch out for in terms of how steel companies perform in India," he said.

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