Lenders wary of JSW's Bhushan Steel proposal

Sajjan Jindal's JSW Steel is working overtime to push through a proposal for a controlling stake in Bhushan Steel but lenders, so far, seem reluctant.

A series of meetings were held last week with the management of State Bank of India (SBI) and Punjab National Bank, lead lenders of Bhushan Steel. Sajjan Jindal, chairman of the JSW group, met SBI chief Arundhati Bhattacharya last Friday to discuss the proposal, say sources.

"It is possible the lenders might go for another round of restructuring of debt for Bhushan Steel," sources indicated. They'd been exploring the option of recasting loans under the Scheme for Sustainable Structuring of Stressed Assets for some time. That was before JSW approached them with an unsolicited offer.

The Bhushan Steel management is not on board with the deal. Their officials were not available for comment.

The main issue with the JSW Steel proposal is the cut the lenders will have to take. The bid is upwards of Rs 25,000 crore, which includes taking over debts of Bhushan Steel, of Rs 44,478 crore in 2015-16. 

Industry sources indicated JSW Steel was interested in Bhushan's Odisha facilities. Bhushan, mainly in the secondary sector, entered the primary sector with the Odisha facility. It has a steelmaking capacity of five million tonnes a year.

Bankers said managers are apprehensive about taking big haircuts for resolving any issue of stressed assets. The recent arrests in the IDBI-Kingfisher Airlines case does create a negative feeling, said the top executive of a public sector bank. It will have an adverse effect on pace of resolution and decisions on credit proposals in the near term, the executive added. 

Bhushan Steel had been facing severe debt servicing problems over recent years. According to its 2015-16 annual report, the problems got aggravated in the past two financial years, when there was a surge in import of steel in India. This led to a substantial fall in domestic prices, impacting the margins and cash flow. In 2014-15, cash loss was Rs 316.6 crore; this increased to Rs 2,474 crore in 2015-16. Debt rose from Rs 39,079 crore in FY15 to Rs 44,478 crore in FY16.
 

A Joint Lenders Forum, constituted on Reserve Bank guidelines, was entrusted with arriving at a long-term viable solution.

For JSW Steel, which has annual capacity of 18.1 million tonnes, acquiring Bhushan would bring it closer to its target of 40 mt capacity by the next decade. JSW also happens to be one of the frontrunners for Monnet Ispat Energy, for which lenders had invoked Strategic Debt Restructuring.

Industry sources believe there could be more bidders ahead for Bhushan Steel. The issue would hinge on the haircut the lenders would have to take.