Home >companies >news >Banks classify Bhushan Steel loans as non-performing assets

Mumbai: Several banks that have loaned money to Bhushan Steel Ltd have classified the loans as bad (or as a non-performing asset, or NPA) in January-March quarter, three bankers in the know confirmed. With debt of more than 40,000 crore, Bhushan Steel has been among the larger stressed accounts for domestic banks.

Banks have been struggling with the account since August 2014 when they first formed a joint lenders forum (JLF) to monitor the company after vice-chairman Neeraj Singhal was arrested by the Central Bureau of Investigation (CBI) in connection with a loan-against-bribe scandal.

After working on a number of options, including refinancing debt under 5/25 scheme, which allows infrastructure firms to extend the duration of loans, banks have finally had to classify the loan as a bad one.

“The company was part of the AQR (asset quality review) list and we had been asked to provide for it since it has defaulted on interest payments," said a senior official at a state-owned bank who did not want to be identified.

The AQR was an audit conducted by Reserve Bank of India (RBI) across banks in December 2015, after which it circulated a list of weak accounts that banks needed to provide for between the third and fourth quarters of financial year 2015-16.

On Wednesday, RBI gave a breather to banks by removing a few companies from the list after their promoters started making regular payments. Among these are companies that are part of Jaypee Group. Bhushan Steel wasn’t one of the companies, the first banker added.

The company said it is yet to hear from the banks. “We are yet to receive any communication from the lenders regarding an NPA classification," said Nitin Johari, the director of finance at Bhushan Steel.

Lenders last met the promoters as part of a two-day asset quality drive in March where they discussed the turnaround plans for various borrowers in trouble, including Bhushan Steel.

During the meeting, the promoters of Bhushan Steel were given time till 30 June to ramp up production if they wanted any further support from the lenders. “At the end of the first quarter, the promoters will submit a progress report, on the basis of which lenders will take further calls on the case," said the second banker who spoke on condition of anonymity.

To free up capital, Bhushan Steel has already sold the oxygen plant at its Odisha facility for 1,000 crore and leased it back.

Bhushan Steel is now in the process of selling the coke oven plant for 2,000 crore and then lease it back too.

During the lenders meeting in March, the promoters were asked to eventually consider bringing in a strategic investor so that the debt-to-equity ratio could be brought down to sustainable levels. As on 31 March 2015, Bhushan Steel’s debt-to-equity ratio was 4.93, meaning, the debt was nearly five times the level of equity in the firm.

It may not be easy to find a strategic investor, said Jayanta Roy, senior vice-president at ratings firm Icra Ltd. “We are yet to witness a steel company attracting an investor in India. Whether it would happen or not and what the right valuation will be, is something that is yet to be tested."

And increasing production will provide, at best, temporary relief, Roy added.

“Increasing production is not a difficult task, but selling the same in a weak market is. With the minimum import price in place, the steel prices have hardened and this would positively impact the profitability of the companies. Also, imports would be lower and domestic companies can fill up the gap. However, this is a temporary measure and unless underlying demand conditions improve significantly, we cannot expect much of a turnaround for weak domestic steel companies."

The consortium of lenders, in July last year, approved a 5/25 refinancing plan for a part of the company’s loans. Despite the NPA tag, that refinancing plan continues to remain in effect, the third banker said.

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