Steel firms dominate RBI's list of 12 defaulters

Bhushan Steel, Lanco Infratech, and Essar Steel the most indebted companies

With the Reserve Bank of India (RBI) putting 12 stressed loan cases under the Insolvency and Bankruptcy Code (IBC), bankers are betting on getting better value in troubled steel companies such as Essar Steel and Bhushan Steel.

While senior bankers and restructuring advisory professionals said there was a heavy concentration of cases from the steel and infrastructure sectors, they expected resolution to happen faster in steel. 

The improvement in demand, better price and the anti-dumping duty on imports have helped steel companies improve realisations and profitability. 

The RBI’s list of 12 companies includes five steel makers — Bhushan Steel, Essar Steel, Bhushan Power & Steel, Monnet Ispat, and Electrosteel Steels. Companies from the infrastructure space include Lanco Infratech, Era Infra, Jaypee Infratech, and Jyoti Structures. Textile firm Alok Industries, auto ancillary firm Amtek Auto, and shipmaker ABG Shipyard were also part of the list of 12 companies, said senior bankers Business Standard spoke to. 

“The first batch of filing resolution with the National Company Law Tribunal would be done by month-end and the second round by mid-July. Going by the 180-day deadline for work, we hope to know about the turnaround plan or liquidation by the end of 2017 or early 2018,” a senior banker said.

Many of these companies are operating assets carrying substantial values. “A lot of groundwork had already been done much before the RBI came up with the list,” said the chairman of a leading public sector bank. 

The resolution plan might involve some tweaking, taking into account the latest financials, bankers said. 

The RBI had identified 12 accounts that covered about 25 per cent of the banking system’s non-performing assets (NPAs) for immediate resolution under the Insolvency and Bankruptcy Code earlier this week. These were cases where lenders’ exposure was greater than Rs 5,000 crore with 60 per cent or more classified as non-performing by banks as of March 31, 2016. 

According to the RBI, its internal panel had evaluated 500 top exposures of the banking system and recommended for bankruptcy proceedings. 

The activity will involve a lot of process work and banks are looking at getting adding more hand to teams.

Of the 12 cases, the State Bank of India will take the lead in six cases, while the IDBI Bank would take the lead in two. The Punjab National Bank, Union Bank of India and Corporation Bank will lead in one account each. 

According to analysts, 40-60 per cent provisioning would be needed for steel companies and even larger provisions for others. 

Source: Capitaline; Compiled by BS Research Bureau

Any resolution will “precipitate the need for additional capital at corporate lenders, and we believe only ICICI (Bank) may not need further dilution to provide for these haircuts”, foreign brokerage Credit Suisse said in a report dated  June 14. 

However, the central bank had also said that it would come up with revised provisioning norms on these accounts, which meant that provisions would be spread out over a few quarters.

Analysts estimate additional provisioning in excess of Rs 15,000 crore for the 12 big accounts in question. These 12 cases had total outstanding debt to the tune of Rs 2.5 lakh crore as on March 2016, data analysed by Business Standard showed. The gross bad debt for the banking sector is estimated at Rs 7.11 lakh crore. 

Assuming these accounts were NPAs at the end of March 2016, the broad provisioning might be in the region of 35-40 per cent. Another 10-15 per cent of exposure would have to be set aside by banks as provision.