JSW Steel, Blackstone in talks to buy Monnet Ispat

Sajjan Jindal's JSW Steel, Sudhir Maheshwari-led Synergy Capital and global private equity fund Blackstone are in discussions with lenders for a controlling stake in Monnet Ispat Energy through the strategic debt restructuring (SDR) route.

Sources close to the development said that JSW Steel, Synergy Capital and Blackstone were the shortlisted investors and the final proposals were likely to be submitted by early February. Lenders currently hold 53 per cent in Monnet Ispat Energy.

“The new investor will have a controlling stake in the company. Whether the companies would take the entire 53 per cent, or not, would be known once the proposals are submitted. But it is likely that lenders will be in favour of JSW Steel because of its strategic interest,” the source said.

In 2015, JSW Energy had signed a non-binding agreement for Monnet Power, but it later backed out after lenders refused to take a significant haircut.

Synergy Capital, too, has a tenuous attachment with the steel sector. Maheshwari had spent 27 years with ArcelorMittal, where he was a member of the group management board, alternate chairman of the corporate finance and tax committee and the chairman of the risk management committee. He also managed Mittal Investments from 2008 until 2015. He then went on to set up Synergy Capital Corp LLP.

When contacted, Maheshwari said, "I am unable to comment on market rumours."

Monnet happened to be one of the first SDR companies where lenders had converted debt into equity. Monnet ran into a huge debt and in August 2015 lenders invoked SDR. SDR was introduced by the Reserve Bank of India in June 2015 to tackle bad loans, by allowing banks to acquire control of a defaulting company by converting the loans into equity. That was to be followed up by bringing in new promoters after which sticky assets were to be upgraded to standard ones.

Monnet's total debt increased from Rs 8,606.50 crore in FY13 to Rs 12,499.70 crore in FY15. In FY16, total debt stood at Rs 12,115.10 crore. In the quarter ended September 2016, the company had a negative networth and total debt stood at Rs 6,872.70 crore; net loss was at Rs 409 crore on net sales of Rs 271.1 crore.

It is not clear whether existing promoters would retain a minority stake in Monnet. As of September 2016, promoters held 25.27 per cent in the company. “It will be a complex structure. The debt will have to be restructured,” the source said.

An e-mail sent to JSW officials remained unanswered.

The main issue would be the haircut that lenders may have to take. A Religare report of early 2016 had said that to attract a new buyer, lenders would have to take a haircut of 84.5 per cent.

Discussions with Synergy Capital have been on for a while. However, sources indicated that the earlier proposal was not found to be suitable. “They will submit a revised proposal,” sources said.

Monnet Ispat's troubles started when the Supreme Court de-allocated 214 coal blocks in 2014. Monnet had five coal mines and was the second largest coal-based sponge iron producer. Its facilities are based in Raipur and Raigarh. From a sponge iron player, Monnet Ispat had transformed to a steel maker by commissioning a plant at Raigarh in FY14. The operating mine close to Raigarh provided the plant coal.