Promoter faction raises questions on Usha Martin-Tata Steel deal

After the Usha Martin-Tata Steel deal was cleared by its shareholders, with 99.99 per cent of votes in favour, Prashant Jhawar, one of the majority shareholders, raised questions on the debt of the company, expected net proceeds, and funds likely to be used for repaying debt.

The Basant-Prashant Jhawar promoter faction holds a 25.5 per cent stake in the company. The duo also dissented on the firm’s results, approved by the board of directors with a requisite majority at the meeting held on Monday. 

Sources close to the development said the issue of sale of wire and wire ropes, had to be closed on Monday. Originally the company planned to sell the wire and wire ropes division but inadequate valuation had prompted it to consider the steel business for sale. Basant and Prashant Jhawar however dissented as they were in favour of sale of both divisions. 

Prashant Jhawar’s submission to the stock exchanges was in the context of recent statements by Managing Director, Rajeev Jhawar, and chairman, G N Bajpai, at the company's extraordinary general meeting (EGM) on Saturday.

The Basant-Prasant Jhawar promoter faction and Brij-Rajeev Jhawar promoter faction, which have an equal shareholding of 25.5 per cent in the company, have been at odds for a while now.

Prashant Jhawar sought to know the debt of the company as of September 30, 2018. Usha Martin had said at the EGM on Saturday the debt at the end of June was Rs47 billion.

Prashant Jhawar also wanted details of the expected sale proceeds of the steel division, expected range of taxes and direct transaction cost, and any other expenses beyond Rs50 million to be paid from the proposed escrow account.

He also wanted to know the details of funds likely to be used for repaying debt and whether there would be any supervision by the board of the operations of the proposed escrow account. The sale proceeds, Usha Martin had said, would be kept in an escrow account with State Bank of India, which is the lead bank.

Prashant Jhawar has also questioned the likely payment towards various contingent liabilities relating to the erstwhile coal and present operating/under development mines of the company, which are proposed to be transferred as part of sale transaction and would have a bearing on the expected realisable value of the steel plant. The amount was Rs3.77 billion as on March 31, 2018, according to Jhawar's submission.

Apart from the steel-manufacturing facility, the transaction with Tata Steel also includes an operative iron ore mine at the Ghatkuri block, a coal mine under development in Brinda and Sisai districts and captive power plants. The size of the deal is Rs45.20 billion.

Prashant Jhawar’s concern is whether the state government of Jharkhand would allow transferring the operating iron ore mine and coal mines without a settlement of dues. 

Rajeev Jhawar had said the transaction would be completed in three months.