Banks ask Bhushan to sell and lease back critical assets

A day after effectively taking charge of Bhushan Steel, lenders have delivered another punch.

The bankers’ consortium, which met in New Delhi on Monday, has asked the troubled steel maker to sell and lease back some of its critical assets to reduce debt, as the borrower is finding it difficult to raise equity from the market.

This is part of the road map drawn by SBI Caps, the merchant banking arm of State Bank of India, for recovery of around Rs 40,000 crore (Rs 400 billion) that Bhushan Steel has borrowed from 35 lenders.

According to the plan, the steel company has been asked to deleverage by repaying debt.

However, given the company’s present problems that led to a slide in its share price, raising equity through a qualified institutional placement was not a viable proposition at this point, a banker who attended Monday’s meeting told Business Standard.

The share price of Bhushan Steel has fallen 62 per cent since August 5. The shares closed at Rs 144.90 apiece on Tuesday.

Bankers said four assets, including a coke oven plant, had been identified by the steel company.

It is not immediately known how much debt will be reduced through the sale and lease-back.

According to bankers, there is no dearth of buyers for the company’s facilities and SBI Caps is in the process of identifying prospective bidders, which might include global steel producers.

Banks have tightened their grip on the firm since its vice-chairman & managing director, Neeraj Singal, was arrested by the Central Bureau of Investigation on August 7 for allegedly bribing SK Jain, the now-suspended chairman & managing director of Syndicate Bank.

Bankers said the forensic audit, as decided by the consortium on Monday, would be done by an external agency and would seek to find out if the firm diverted the borrowed funds or used those for purposes other than those for which the loans were given.

It would also find out whether there was creation of genuine assets.

These steps were taken even as the loans continue to be standard on the books of banks and have not become non-performing.

However, following the liquidity problem that Bhushan Steel, one of the most indebted steel makers of the country, is facing, the loan is now categorised as special mention account 2 that is overdue in 60 days.

A concurrent auditor will also be appointed to monitor cash flows on a daily basis and an independent engineer will look at the operations of the company.

“Given the magnitude of the exposure and the number of lenders involved, banks will take a huge hit if the loan turns bad,” said a senior executive of a public-sector bank.

THE STORY SO FAR

AUGUST 2

CBI arrests Syndicate Bank’s chief, S K Jain, over graft charges

AUGUST 7

CBI arrests Bhushan Steel Vice-Chairman & Managing Director Neeraj Singal for allegedly bribing Jain

AUGUST 8

SBI Chairman Arundhati Bhattacharya says an external agency will be appointed to monitor day-to-day operations of Bhushan Steel.

AUGUST 18

Lenders decide to go for forensic audit; say they will nominate three members on the company’s board

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