 "Steel")
With early signs of benefits from support accruing to the domestic steel sector, lenders are looking to increase the share of contribution from stressed steel companies to repay banks’ dues. This comes in the backdrop of improvements in volumes from product sales.
Till date, up to 85 per cent of cash flows were deployed to finance operations and normal expenses, while the remaining 15 per cent was used to service debt. The contribution to service debt could be raised to 20 per cent and beyond, without sacrificing the needs of regular operations, senior public sector bank executives said.
The decision would be based on a detailed case-by-case analysis and not an across-the-board directive. The performance of companies in the coming two quarters would be crucial in taking the decision, an IDBI Bank executive said.
Overall, the rise in steel prices, protection coming in from higher import duties and the leeway in repayment terms was beginning to show positive results, an executive said, adding there has been an increase in operating margins of some integrated steel players.
Nitin Johari, chief financial officer at Bhushan Steel, said: “Banks have asked us to keep 10 per cent of our net sales aside, which will be used for servicing of interest. This is being done on a monthly basis since March. Bhushan Steel has been following this very rigorously and we have not missed a single month.”
Till date, up to 85 per cent of cash flows were deployed to finance operations and normal expenses, while the remaining 15 per cent was used to service debt. The contribution to service debt could be raised to 20 per cent and beyond, without sacrificing the needs of regular operations, senior public sector bank executives said.
The decision would be based on a detailed case-by-case analysis and not an across-the-board directive. The performance of companies in the coming two quarters would be crucial in taking the decision, an IDBI Bank executive said.
Overall, the rise in steel prices, protection coming in from higher import duties and the leeway in repayment terms was beginning to show positive results, an executive said, adding there has been an increase in operating margins of some integrated steel players.
Nitin Johari, chief financial officer at Bhushan Steel, said: “Banks have asked us to keep 10 per cent of our net sales aside, which will be used for servicing of interest. This is being done on a monthly basis since March. Bhushan Steel has been following this very rigorously and we have not missed a single month.”
Lenders at a review meeting scheduled at the end of September or early October are expected to increase this share from the current 10 per cent, depending upon the cash flows and profitability that metal companies have, he said. On the overall industry perspective, Johari said: “We have increased prices this month but our raw material prices, especially that of coking coal, has shot up and so the net impact is not much.”
A senior State Bank of India official said this payment arrangement was being operated through the Trust and Retention Account. This wasn’t some new mechanism for ensuring payments, the official said, adding lenders had begun to use it actively in steel sector accounts after the domestic sector got s “slew of support steps such as higher import duty and restructuring of loans”.
The Reserve Bank of India in its Financial Stability Report in June said in the case of the distressed steel sector, the import duty for steel products was increased. The government also imposed additional safeguard duty and a minimum import price was stipulated. In addition, auction of long-term coal linkages was being envisaged.
The slump in demand due to economic slowdown and dumping by China due to excess inventories hit the Indian iron and steel sector hard. At present, 48 iron and steel units are under corporate debt restructuring (CDR) with lenders’ exposure of Rs 52,190 crore as of June 30, 2016, according to CDR cell data.
