Bhushan Steel gets S4A-ready, submits final proposal to banks

One of the biggest corporate debt restructuring programmes could kick off if leading public sector banks admit New Delhi-based Bhushan Steel into the scheme for sustainable structuring of stressed assets (S4A). A final proposal for S4A was submitted recently.

People close to the development said State Bank of India (SBI) and Punjab National Bank (PNB) were the lead bankers to the group, which has been in financial distress for some time. 

Close to 50 banks have an exposure to the company. While the chunk of the term lending has been by SBI, the working capital loan has been extended by PNB.

“The final proposal for S4A was submitted last month. The company got approval from 60 per cent of the member banks, amounting to 75 per cent of the loan value for the scheme, in the joint lending forum,” said a person quoted above. 

The company had Rs 44,477.90 crore debt in 2015-16. About Rs 10,000 crore has been added over the past three years as interest, including penal interest.

The company has cleared two stages in subscribing to the scheme. They include a forensic audit and technical viability study. According to the Reserve Bank of India’s (RBI’s) S4A scheme, banks are required to establish through a forensic audit that there was no malfeasance on the part of the promoters. If the audit finds anything adverse, S4A cannot be implemented unless there is a change in ownership or if the management is vested in the delinquent promoters.

The technical viability study had established that its current cash flow could service the sustainable part of the debt, said a person privy to the development. Under S4A, banks are allowed to split the loan into a sustainable and an unsustainable part. The unsustainable part is then converted into long-dated securities, which can be redeemed later.

The company has been under the debt restructuring radar for some time, with even Sajjan Jindal-led JSW Steel launching a proposal to take over the firm. The JSW offer had not gone down well with the Bhushan Steel management.

The company, with 5.6 million tonnes of secondary steel capacity, is the third-largest secondary steel producer in the country. For 2016-17, buoyed by exports, the company is looking at better sales. Its gross sales were Rs 4,000 crore for the quarter ended December 31, 2016, against Rs 2,747.68 crore during the same period in 2015-16.

According to the June 2016 notification, in order to be eligible for S4A, it is necessary for a project to have commenced commercial operations. Besides, the aggregate exposure (including accrued interest) of all institutional lenders to the account must be more than Rs 500 crore

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If the S4A for the company goes through, an Overseeing Committee (OC), comprising eminent persons, will be constituted by the Indian Banks’ Association in consultation with the RBI. A resolution plan will be submitted by the joint lenders’ forum or bank consortium to the OC. The committee will review the processes involved in preparing the resolution plan, etc. for reasonableness and adherence to the provisions of these guidelines. It will also act as an advisory body.