Vedanta Ltd.’s resolution plan for Electrosteel Steels Ltd. involves a total equity and debt infusion of Rs 5,320 crore after which the existing shareholders of the insolvent company will be reduced to holding less than 10 percent equity.
Vedanta’s resolution plan received approval from the National Company Law Tribunal today pursuant to which the bidder filed its approved resolution plan with the stock exchanges.
A wholly owned subsidiary of Vedanta will subscribe to the share capital of Electrosteel for Rs 1,805 crore, according to the stock exchange filing. This will entitle it to 90 percent of Electrosteel’s paid up share capital and the remaining 10 percent will be “held by Electrosteel’s existing shareholders and the financial creditors who receive shares in exchange for the debt owed to them”, said the filing.
The quantum of shares to be owned by lenders has not been disclosed.
The Vedanta subsidiary will infuse Rs 3,515 crore via debt. The funds received, via debt and equity, will be used by Electrosteel to “fully settle debt” owed to financial creditors. It owes lenders more than Rs 13,000 crore—about Rs 5,000 crore to State Bank of India alone—according to information available on the steelmaker’s website. It owes operational creditors Rs 191.6 crore, the resolution professional had acknowledged.
Shareholders will see value erosion, under this resolution plan, but there is also a “potential upside that a Vedanta can bring to them which an Electrosteel cannot”, Abizer Diwanji, partner and India leader-financial services at EY, told BloombergQuint.
If you take the market cap of Rs 700 crore, that will get reduced down. And if you see the equity infusion which is Rs 1,805 crore, that itself gives it the market cap of Rs 2,000 odd crore. Out of the 2,000 crore market cap, 90 percent is going to be owned by Vedanta which means roughly Rs 200 crore for the legacy shareholders.Abizer Diwanji, Partner And Indian Leader Of Financial Services, EY
Vedanta’s filing states that the consideration payable under the resolution plan, as well as the transaction fees and expenses will be paid using its existing cash resources.
The transaction is conditional on receiving approval from the Competition Commission of India and Securities and Exchange Board of India.
Electrosteel was among the first 12 large corporate accounts that the Reserve Bank of India identified in June last year for insolvency resolution. It owns and operates a greenfield integrated steel manufacturing facility near Bokaro, Jharkhand, India, which has a current capacity of 1.5 million tonnes per annum and the potential to increase to 2.5 MTPA, as per Vedanta’s filing.
As of March 2017, the company recorded a loss of Rs 1,463.48 crore on a total income of Rs 2,867.83 crore. For the nine month period ended December 2017 the loss amounted to Rs 866.50 crore on a total income of Rs 2,440.35 crore.