ArcelorMittal's funding fails to lift Uttam Galva Steels fortunes

Despite ArcelorMittal paying overdues of Rs 4,922 crore of Uttam Galva Steels to the Indian lenders, the financial metrics of the company has deteriorated further in FY19 because of its rising finance cost and provisions made on doubtful advances paid by the firm to its vendors.

The company paid interest of Rs 938 crore in the year ended March 2019, up from Rs 654 crore reported in FY18. The firm also incurred a loss of Rs 1,221 crore from operations as against loss of Rs 881 crore in the previous year. Its loss widened after it made provisions of Rs 904 crore for doubtful advances made to vendors and capital goods suppliers.

Apart from paying secured lenders, ArcelorMittal also paid Uttam Galva Steels' overdue for foreign loans of $172 million. With this, these loans are now assigned to ArcelorMittal India and the remaining outstanding loans are continuing with the existing lenders as ‘surviving debt’. Bulk of Uttam Galva’s loans are now assigned to ArcelorMittal India.

ArcelorMittal had paid the overdues of Uttam Galva in order to become eligible to bid for Essar Steel, which was auctioned by the banks after the company failed to repay its debt. Mittal’s payment to banks came after the Supreme Court asked the company to pay overdues of all the defaulting companies in which it held stake.

As ArcelorMittal held stake in Uttam Galva, which was a bank defaulter, it had to pay the dues of the company following the Supreme Court order. The financial results show that the company’s net worth is completely wiped off by Rs 2,274 crore while its revenue was Rs 556 crore in FY19. 

For the fiscal ended March 2018, its revenue was Rs 2,622 crore. The company said its turnover figures for FY19 were not comparable with the previous year mainly because as during the financial year, the company has carried out its operations on job-work basis due to lack of working capital and raw materials.

In its FY18 annual report, the company admitted that it was facing continued problem of working capital availability, which has resulted in operating the plant on job-work basis at sub-optimal capacity of 40 per cent. 

The company warned that the cash flows from existing operations are not sufficient to cover the fixed overheads, let alone the principal and interest obligations of the firm. However, to ensure that the debt does not become a non-performing asset, the company has consistently cleared the dues before 90 days from the due date from the funds borrowed from ArcelorMittal India by way of inter-corporate deposits.

Thanks to ArcelorMittal’s payment, State Bank of India, which had filed the insolvency petition against the company, withdrew the plea on November 1, 2018. In the first quarter of FY20, the company's loss was Rs 65 crore and made a provision of Rs 198 crore. Thus taking its total loss to Rs 263 crore on revenue of Rs 98 crore.