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Uttam Galva Offers 51% Of Outstanding Loan To Avoid Asset Auction

Uttam Galva offered to settle the Rs 5,654 crore loan default by paying 51 percent the amount upfront to lenders.

A coil of cold-rolled full hard steel sits at the manufacturing facility of Uttam Galva Steels Ltd., the Indian unit of ArcelorMittal, in Khopoli, Maharashtra, India. (Photographer: Vivek Prakash/Bloomberg)  
A coil of cold-rolled full hard steel sits at the manufacturing facility of Uttam Galva Steels Ltd., the Indian unit of ArcelorMittal, in Khopoli, Maharashtra, India. (Photographer: Vivek Prakash/Bloomberg)  

Uttam Galva Steels Ltd. has offered to settle the Rs 5,654 crore loan default by paying 51 percent the amount upfront to public sector banks, so as to abort the auctioning of the company’s assets.

The company, which is part of the Reserve Bank of India’s second list of loan defaulters which have been referred to the bankruptcy tribunal for insolvency proceedings, on March 15, wrote to the State Bank of India, proposing a “one-time settlement” of all dues of lenders “through an upfront payment mechanism”.

SBI is the largest of the 18 banks which have to recover Rs 5,654 crore from the company.

Uttam Galva has offered to pay Rs 2,884 crore upfront to settle with all of them and take company out of insolvency proceedings.

Calls made to Uttam Galva Managing Director and CEO Anuj R Miglani for comments, remained unanswered.

According to the five-page letter, reviewed by PTI, the company proposed “a one-time settlement of the dues of lenders to the extent of 51 percent of the outstanding claims as on the date of NPA, ie Q1FY17”.

SBI has the highest dues at Rs 1,529 crore followed by Canara Bank at Rs 857 crore and Punjab National Bank at Rs 660 crore. If the proposal is accepted, lenders would have to take a haircut or write-off 49 percent of the dues. It may also lead other companies to file similar settlement applications with their lenders, stalling the insolvency and bankruptcy proceedings initiated against 12 big loan defaulters.

In the letter to SBI, Uttam Galva said its loan account had turned into an non-performing asset during Q1 of 2016-17 fiscal year due to adverse operating conditions.

Being an OTS and not debt restructuring, the proposal doesn’t fall under the requirements specified in the RBI guidelines of Feb. 12, 2018 (on insolvency and bankruptcy proceedings). Hence, the procedure for debt restructuring mentioned in the circular such as independent credit evaluation etc may not be required.
Uttam Galva Letter To SBI 

Stating that its proposal has minimum payment risk for the lenders as the entire amount is paid upfront, the company said that since the account has already been classified as D1 by the lenders and referred to NCLT, 50 percent provisioning must have already been done by lenders.

“In this case, an OTS of 51 percent would not adversely impact the financial performance of the lenders,” it said. “We once again request lenders to consider this proposal as it is in the best interest of all the stakeholders.” In future, “we assure you our complete cooperation in all the matters and reiterate our commitment to address all issues to your full satisfaction to the best of our ability,” it added.

Stating that the company has tried for a resolution in “all possible manner,” the letter said lenders neither accepted a proposal to bring in private equity investor AION Capital Partners nor did they agree to a strategic debt restructuring offer.

Additionally, “the company management entered into active discussions with various investors including Liberty group, Mitsubishi (Japan) and other financial investors from Middle-East. However, none of these investors evinced any further interest in the company and hence, no proposal was submitted by them in this regard”, it said.

Uttam Galva said the company was referred to National Company Law Tribunal for initiation of corporate insolvency resolution process.

However, based on various reports by experts, it has been noticed that the CIRP mechanism has not been a successful recovery mechanism for lenders too, as the recovery has been less than 34 percent of the total outstanding claims. In fact, in certain cases, the recovery has been as low as 6 percent.
Company statement

As of Dec. 31, 2017, out of all the insolvency cases that have concluded, majority of them have undergone liquidation due to lack of interest from investors to offer an amount higher than the liquidation value.

"Hence it can be said that the CIRP mechanism has not been beneficial to the lenders in getting better recovery from the NPA assets," the company added.

Giving its history, Uttam Galva said it has been in operation since 1985 and remained a top-tier secondary steel producer in India since then.

The company has successfully weathered financial stress faced by the steel industry in the past (including the 1998-2002 downturn when majority of steel players had to undergo debt restructuring in 2001-02).

“The company has maintained an impeccable track record of timely payment of all its financial obligations, it said. "However, the sectoral issues faced by Indian/ global steel market in 2015-16 had hit the company's financial performance very hard.”

“Even during these adverse operating conditions, company consistently strived to meet its financial commitments to lenders until mid-2016, but later the account became NPA with all the lenders during Q1 FY16-17,” it added.