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Essar Steel seeks more time from RBI for debt restructuring

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Source: The Economic Times
Wednesday, July 12, 2017
MUMBAI: The Essar group wants more time from the Reserve Bank of India to close its restructuring package with banks for Essar Steel and has termed as unfair the regulator's decision to refer the firm to the bankruptcy court. 

In an exclusive interview with ET, Essar Group director Prashant Ruia said that Essar Steel's operational performance has improved in the past one year and that it should be given more time to close its restructuring package with lenders agreed to in January this year. 

He blamed the previous UPA administration for the problems at Essar Steel and the delay in finalising a restructuring package for its current problems. 

Ruia said it was unfair to club Essar Steel with 11 others in the reference to the bankruptcy court and that the RBI had not taken into account Essar's improved performance since March 2016. 

Ruia also said that all necessary approvals for the sale of Essar Oil to Rosneft have been received. "I am sure the deal will be closed this month," Ruia said. 

But he was not so sure about the outcome of the case Essar Steel is fighting in the Gujarat High Court against the RBI decision to refer the firm to the bankruptcy court. Last month, acting on an ordinance by the central government on resolving the bad loan issue, RBI directed banks to do two things. 
It asked them to immediately refer 12 corporate accounts, including that of Essar Steel, to the bankruptcy court and directed banks to resolve 488 other cases through loan and asset restructuring in six months. In case this does not happen, these cases are also to be referred to the bankruptcy court. 

Last week, the Gujarat High Court stayed all proceedings in the National Company Law Tribunal (NCLT) against Essar Steel. Hearings are set to resume on July 12 and a decision on whether the banks can go ahead with their petition will be decided this week. 

IMPROVED SHOW 
Ruia argued that Essar Steel should be given time like 488 other cases. "Based on our performance in the last 15 months since the cutoff date indicated in the press release, in fairness, we believe that we should be included in the second category of 488 companies which have been provided a period of 6 months to restructure the loan and not be expressly sent to NCLT with the potential risks of a deterioration in the operations of the company," Ruia said. 

He said Essar Steel's plant has improved its capacity utilisation to 80% in March 2017 from 35% in March 2016. It has restarted the gas-based plant, expanded the capacity and repaid approximately Rs 3,400 crore to lenders. 

"We have full respect for the IBC (Insolvency and Bankruptcy Code) process and the effort taken by the entire system to resolve the NPAs. We are in an advanced stage of restructuring and because of extraneous issues banks were unable to take a final decision," he added. 

The bankruptcy court process involves the appointment of an interim resolution professional (IRP) who will manage the affairs of the company for six or nine months till a restructuring package is approved. Essar fears that the IRP's appointment will demoralise employees and suppliers and affect normal functioning of the company. 

In December 2016, both lenders and Essar agreed to a restructuring package which included the sale of the Ruias' 26% stake to an external investor, conversion of loans into equity up to 36%, which will reduce debt to Rs 29,000 crore from Rs 42,000 crore, and repayment of debt in 20 years. The restructuring was agreed after lenders failed to find a partner for the steel asset. 

UPA POLICY 
Ruia blamed the previous UPA administration's decision to rescind gas supply to the plant and said it affected its performance badly. "The government (in those days the gas linkage committee) gave us allocation for gas with which we built the gas-fired plant. 

"In 2011, one fine day the government decided to reallocate the gas to priority sectors like fertilisers as the gas supply was dropping down from Krishna Godavari D6 basin. In that priority, steel was put at the bottom and the gas supply was cut and the 4.5 million tonne plant virtually had to be shut," he said. 

He said that this hurt the company for four years until the last quarter of 2015 when international gas became cheaper with falling crude prices. "This whole cancellation episode was completely out of the control of Essar and it was because of government decision. The loss caused by the cancellation of gas for four years is Rs 25,000 crore," he said. 

On the repayment to Life Insurance Corporation, he said Essar Oil has issued the insurer a prepayment notice with an assurance that before the deal closure it will repay the dues while all other lenders' consents have been received. 

The deal, one of the largest foreign direct investment in India, will deleverage around Rs 70,000 crore of debt, part of which will be of the operating company and rest by the holding company Essar Global. "The sale (to Rosneft) will see deleveraging around 60% of the group debt,'' Ruia said.  



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