Mumbai: Indian Overseas Bank (IOB) is selling Rs600 crore worth exposure in debt-laden steel firm Bhushan Steel Ltd, said two people aware of the development. Assets Care and Reconstruction Enterprise Ltd (ACRE), an asset reconstruction company sponsored by SSG Capital Management, Axis Bank Ltd and Punjab National Bank, has emerged as the front runner for the debt purchase, they said.

Bhushan Steel’s total debt stood at around Rs42,355 crore as of 31 March.

The National Company Law Tribunal (NCLT) admitted the bankruptcy plea against the steel company filed by State Bank of India on 26 July.

The insolvency resolution process for Bhushan Steel is expected to be completed by 22 January.

IOB managing director and chief executive R. Subramaniakumar confirmed the bank is selling its exposure in the steel firm.

He did not specify the amount of debt being sold.

 ACRE did not respond to an email seeking comments.

In September, IOB sold Rs1,500 crore worth of its debt exposure in Essar Steel Ltd to Edelweiss Asset Reconstruction Co. Essar Steel, like Bhushan Steel, is part of the 12 accounts that were referred to the banks by the Reserve Bank of India for early resolution through the bankruptcy court.

Sale of loan will allow IOB to exit its exposure in Bhushan Steel swiftly. At the end of September, the bank had non-performing assets worth Rs34,708.59 crore and a gross bad loans ratio of 22.73%.

“Sale of loan to an ARC is just a transfer of exposure to the investment book and does not require any court approvals like the resolution process," said one of the people cited earlier. 

 Analysts, however, think sale of bad debts to ARCs is likely to bring only short-term relief for banks if the realisations from the resolution process are low. “Selling off the bad loan will be optically effective as gross NPAs will be off the books and near-term provisioning requirements will also go down. On resolution, however, eventually the bank will have to bear the same loss if the haircut under the resolution plan is higher than the value at which the loan was sold to ARC,"said Anil Gupta, vice-president at ICRA Ltd.

“ACRE is likely to follow a passive strategy after acquiring the debt as there is limited scope to restructure cases that have been admitted for resolution under IBC. Either they will wait for the resolution process to be over and earn a certain yield in the interim or they will sell it in a cash deal," said the second of the two people cited earlier. 

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