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Recovery from stressed steel firms may be lower in new resolution round

  • The cases, unlike in earlier round, will be smaller assets in long integrated, sponge iron and flat re-rolling industry
  • In the first round, 18 bankrupt steel companies were referred to the NCLT for resolution

Mumbai: Seventeen stressed steel companies are being taken by lenders to the National Company Law Tribunal (NCLT) in a fresh move to resolve debts worth around 62,000 crore, credit ratings agency Crisil said in a report on Thursday.

However, the agency expects recoveries to be much lower in this clutch of companies than in the first round, although it did not say how much the recovery is expected to be.

In the first round, 18 bankrupt steel companies were referred to the NCLT for resolution, having a combined debt of 1.9 trillion.

This includes Bhushan Power and Steel, and Essar Steel, wherein the resolution process is yet to be completed. The lenders have taken an aggregate hair cut of 42% to resolve these assets, implying a loan recovery rate of 58%, or just over half of what they were owed.

Unlike the first wave of debt clean-up, the upcoming resolution cases will be smaller assets concentrated in the long integrated, sponge iron and flat re-rolling industry.

Of the 62,000 crore owed by these 17 companies as of March, 42% lies with six long integrated players, 38% with six sponge iron/pig iron players, 18% with three flat re-rollers, and the balance with alloy steel and other players, the Crisil report said.

In these sectors, past recoveries through resolution of stressed debt have been at much lower rates: 32% for long integrated, 39% for sponge iron, 30% for flat re-rollers and 17% in alloy steel.

The first round of bankrupt steel companies primarily comprised flat steel manufacturers, which is the key segment of operation for large integrated steel players.

Location, integration across the value chain and scale of operations were the additional advantages that gave lenders an aggregate of 58% from these assets.

They include Bhushan Steel (acquired by Tata Steel), Monnet Ispat (acquired by JSW Steel), Electrosteel Steels (acquired by Vedanta), Bhushan Power and Steel (where JSW Steel is the highest bidder) and Essar Steel (ArcelorMittal is the highest bidder).

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