• Bhushan Steel which is already undergoing its insolvency proceedings, recently announced its third quarter numbers (from Sep-Dec’17) of FY18.
• The company’s net loss for the Q3 FY18 plummeted to INR 1,607 crore against INR 467.4 crores in previous quarter of FY18. While its losses in corresponding quarter of previous year i.e. in Q3 FY17 was reported at INR 743 crore.
• Bhushan Steel’s revenue from operations during December quarter of FY18 stood at INR 4,407.7 crore as against INR 4,325.6 crore in Q2 FY18. The company’s total income in Q3 or previous year FY17 was recorded at 4,094.7 crore.
• Company’s total expenses in Q3 FY18, also rose to INR 5,844.3 crore against INR 4,937.3 crore in previous year’s Q3 FY17.
How Bhushan Steel Landed Itself in Trouble of Bankruptcy?
Bhushan Steel which was started in 1987 was a well-known player in the Indian steel circuit and was largest manufacturer of auto-grade steel in India.
• The company had three manufacturing plants; one in Ghaziabad, U.P that manufactured widest sheets in India for automotive industry.
• Another plant in Khopoli Maharashtra which was started in the year 2004 and produced colour-coated sheets, high-tensile steel strappings, hardened and tempered steel strips, along with CRCA steel to cater to the needs of the automobile industry
• Third plant which was started in 2005 is located in Odisha produced HRC and had mills for hot rolling.
When financial troubles started brewing for the company?
• The company was performing well till 2009-10 until its debt obligations did not increased substantially. For instance from 2006 to 2010 company’s debt obligations were in the range of INR 55 crores to INR 316 crores while its cash from operations were much higher and revolved around INR 400 crore each year. These were the years when Bhushan Steel generated net profit growth at a CAGR (compound annual growth rate) of 53%.
• However, the real problems for company started in 2010-11 when its debt repayment obligations almost tripled to INR 1,118 crore. This happened when part of company’s loans taken for capacity expansion for phase I and phase II of Odisha plant became due during the year.
• Company generated operating cash flows of INR 994 crore in 2010-11, which fell short against its debt obligations of INR 1,118 crore for the year. Still, company continued its borrowing spree to finance third phase of construction of its Odisha plant.
• The situation worsened in 2013-14, with more loans becoming due. In Nov’13, the furnace at its new plant in Odisha exploded during testing, killing 3 and injuring 29 workers signalling the start of company’s extreme troubles.
• In 2013-14 the company repaid a debt of INR 3,384 crore while its interest repayment increase eight times to INR 1,663 crores whereas its profit shrank to mere INR 62 crores, indicating company’s huge financial trouble.
• The management of the company blamed crisis in global steel sector as key factor for tumble in company’s operating profits. By 2012, the Indian steel industry slipped behind on interest payments as steel prices fell to USD 300/tonne that December from a 2008 peak of USD 1,265/tonne.
• Although steel demand in India around 2012-2014 was not that bad, steel prices fell dramatically amid fall in global steel prices. Subsequently company’s operating profit numbers fell while debt burden piled up landing company in to debt mess.
What is currently happening with the company’s bankruptcy filing?
• In Aug’2014, Bhushan Steel defaulted on INR 100 crores of loan repayment by bribing its lead banker, Syndicate Bank’s chairman for a credit extension.
• The company’s loan was subsequently transferred to SBI (State Bank of India) in 2014. While company was on the brink of default in 2014 itself, SBI and its consortium issued fresh loans with an exposure of INR 10,000 crore.
• However, as domestic steel prices remained stubbornly low, and Bhushan’s interest costs escalated, the company’s total debt rose 30% in two quick years: from INR 35,710 crore in 2014 to INR 46,062 crore in March 2016.
• Now, as defaults continued in 2017 also, on 22 Jun’17 lenders led by SBI decided to begin insolvency proceedings against Bhushan Steel referring it to NCLT (National Company Law Tribunal) for recovery under the Insolvency and Bankruptcy Code. The company’s total loan default as on date stood at INR 44,478 crore.
• On 27 Jul’17, the NCLT allowed bankruptcy proceedings against debt-ridden Bhushan Steel. The company was given 180 days to come up with a resolution, a buffer of 90 days in case of exceptional situation or an ultimatum to face liquidation in the end.
• On 25 Jan’18, a news floated in the media that five strategic investors including Tata Steel, Arcelor Mittal, Vedanta, SAIL, and JSW Steel would submit final resolution plans for troubled steel maker Bhushan Steel.
• The liquidation value that had been set for the company was INR15,000 crore below which no bid would have been accepted and the last date of bid submission was 3 Feb’18.
• While the bidding for the stressed assets of Bhushan Steel closed on 3 Feb’18 and the highest bidder was to be announced on 6 Feb’18, the resolution professional decided to hold back the announcement.
• According to media reports, the top two contenders in bidding process are Tata Steel and JSW Steel. While JSW Steel agreed to pay INR 29,700 crore with an offer to repay INR 28,000 crore upfront and the rest in equity, the only other contender Tata Steel has put a bid INR 24,000 crore.
• However on 14 Feb’18 there came a news that the company’s lenders have invited UK based Liberty House to submit their bids for Bhushan Steel in next two weeks, although the deadline date for bid submission has been expired. However, the two original bidders of the company, Tata Steel and JSW Steel are claiming that as bidding amount for the Bhushan assets are now in the public domain, the lenders’ action could now be challenged in court.
• And the last update in the case is that the committee of creditors of Bhushan Steel will meet on 23 Feb’18 to decide on the winning bid for the stressed assets of the company.
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