Insolvency resolution: Sajjan Jindal's JSW Steel may bid for Uttam Galva

Uttam Galva, a customer of JSW, had entered into a long-term raw material supply agreement with it last year

Sajjan Jindal’s JSW Steel is likely to bid for Uttam Galva Steels, which is in the process of being referred to the National Company Law Tribunal (NCLT) from the Reserve Bank of India’s (RBI’s) second list (28 entities) of big defaulters. “There is synergy with our Dolvi plant in Maharashtra; both plants are near each other,” a JSW official said.

Uttam Galva is also a customer of JSW. Sometime last year, it had entered into a long-term raw material supply agreement with JSW. Uttam Galva happens to be one of the largest manufacturers of cold rolled steel and galvanised steel, and sources hot rolled coil from JSW.

Sources close to JSW indicated bids for Uttam Galva will be made on a going concern basis. An instrument might be offered to banks, so that they can recover their funds over a period. At the end of FY17, Uttam Galva’s accumulated debt was Rs 56.37 billion.

ArcelorMittal has a 29.05 per cent stake in Uttam Galva; it took this in 2009. The RBI had set a deadline of December 13 for finalisation of a resolution plan for the 28 entities in its second defaulters’ list. Failing which, they were to be referred for resolution under the Insolvency and Bankruptcy Code. 
 

JSW’s turnaround experience could come handy in the acquisition of Uttam Galva or stressed assets — the evaluation criteria followed for the first RBI list of non-performing assets lends weightage to it.

JSW  turned around both Siscol and Ispat in about 30  months. In Siscol, it took over a Rs 4 billion loan and offered a two per cent coupon on the rest, in optionally convertible bonds worth Rs 6 billion. The bonds were converted at Rs 62 each after five years. When JSW acquired Siscol, the share price was Rs  4.
 

JSW also turned around the loss-making Dolvi plant that it acquired from the Mittal brothers, Pramod and Vinod. At acquisition in 2010, the earnings before interest, tax, depreciation and amortisation (Ebitda) was a negative Rs 770 million. By end-March 2013, it had operating profit of Rs 11.8 billion, through various cost reduction measures. Both Siscol and Ispat were later merged into JSW.

JSW itself is also a turnaround story. In early 2000, it was under corporate debt restructuring but it came out of this in 2004. Apart from Uttam Galva on the RBI’s second list, JSW is in the fray for stressed steel assets on the first list as well. It is the sole bidder for Monnet Ispat & Energy and has given an Expression of Interest for Bhushan Power & Steel. And, is evaluating a bid for Bhushan Steel.