Bhushan Steel is the first to emerge successful from insolvency and bankruptcy process among the initial dozen big defaulters that the central bank referred for resolution under a law enacted for quick recovery and settlement of stressed assets.
Banks, which though have taken a more than 37% haircut on their outstanding loans of Rs 56,079 crore to Bhushan Steel, can now classify the assets as standard, reducing their bad loan burden. They are likely to reverse the provisions they had made against the account, significantly boosting their first-quarter results. State Bank of India had the highest exposure of Rs 12,872 crore to Bhushan Steel, followed by Punjab National Bank at Rs 4,904 crore and ICICI Bank at Rs 2,449 crore.
Terming the development a “historic breakthrough in resolving legacy issues of banks”, finance minister Piyush Goyal tweeted that “banks will now be in a position to offer more and affordable credit to major sectors of the economy, especially the MSMEs. This will boost employment and the economy even more.”
As per the deal, Bamnipal Steel, a wholly owned subsidiary of Tata Steel, will get a 72.65% stake in Bhushan Steel, while lenders will own 12.27% in it and the balance will be held by existing shareholders.
The board of Bhushan Steel has inducted three senior executives of Tatas.
The existing directors, including promoters Brij Bhushan Singhal and Neeraj Singhal, will have to resign with the change in ownership.
The three Tata nominees are Dibyendu Dutta, group head-M&A and treasury at Tata Steel; Anand Sen, president TQM (total quality management) and steel business at Tata Steel; and Rajeev Singhal, who is a director at several Tata Group companies.
While Tata Steel has made the payment to lenders, it still has to deal with litigation from two entities — L&T and Neeraj Singhal.
L&T moved the bankruptcy court seeking full compensation against its claims of Rs 900 crore from Bhushan Steel. It wants to be treated as a secured creditor, which allows for payment of the outstanding, and not as operational creditor that doesn’t guarantee the money. Singhal moved the National Company Law Appellate Tribunal objecting to the Tatas acquiring Bhushan Steel. The court will hear Singhal’s plea on May 21.
Commenting on the acquisition, Tata Steel managing director TV Narendran told ET: “We are looking forward to working with all stakeholders and the community to build a sustainable future for BSL. There are significant synergies across the value chain which will also enable us to build a stronger equity with our customers.”
“While Bhushan Steel is right now operating at around 3-3.5 million tonne capacity, we can easily see it operating at 4-4.5 mt,” Narendran said on Wednesday at a press meet after the company’s results.
However, to take it beyond 5 mt production level will call for more investments. But it can easily be taken from 5 mt to 8 mt, he added. “We will take on board all 5,000 employees as part of the resolution plan that we have submitted,” Narendran said.
A statement issued by Tata Steel said the investment from Bamnipal Steel in Bhushan Steel has been done through a combination of equity of Rs 158.8 crore and intercorporate loans of Rs 34,973.6 crore. Bamnipal has paid another Rs 100 crore to creditors of Bhushan Steel. Further, as per the terms of their resolution plan, Rs 1,200 crore would be paid to operational creditors over a period of 12 months.
The acquisition of Bhushan Steel is being financed through a combination of external bridge loan of Rs 16,500 crore availed of by Bamnipal Steel and the balance amount through investment by Tata Steel. The bridge loan will be replaced by longer-term debt over a period of time, the company said.