Indian Banks Said to Seek Relief for $13 Billion Loan Revampby and
Lenders ask central bank to relax rules under S4A program
Essar, Bhushan Steel grapple with debt amid industry slump
Some of India’s biggest lenders are asking the central bank to ease debt-management rules as they try to restructure about 870 billion rupees ($13 billion) owed by Essar Steel Ltd. and Bhushan Steel Ltd., according to people with knowledge of the matter.
Lenders including State Bank of India and ICICI Bank Ltd. are aiming to restructure the debt under a new program the Reserve Bank of India started in June, said the people, who asked not to be identified because the information is private. The steelmakers don’t currently meet the program’s requirements because they have not generated enough free cash flow to service at least 50 percent of their liabilities, the people said.
The creditors are asking the RBI to reduce the serviceable-debt target used in the Scheme for Sustainable Structuring of Stressed Assets, or S4A, as the program is known, the people said.
Indian steel producers have found it more difficult to repay loans as higher raw-material prices cut into their earnings. The price of coking coal is up 125 percent in the past 12 months, even after falling 44 percent from a high in November, according to data compiled by Bloomberg.
“Everyone is keenly watching how the RBI will address the issue,” Hatim Broachwala, a Mumbai-based banking analyst at Nirmal Bang Institutional Equities, said by phone Friday. “Provisions for some of the large stressed accounts will go up in coming quarters if banks don’t find a way to restructure it and keep at least part of it standard.”
Bhushan Steel shares rose as much as 8.4 percent to 49.60 rupees in Mumbai on Friday to the highest intraday level since Oct. 25, while the benchmark S&P BSE Sensex Index fell as much as 0.4 percent.
Lenders to the two steelmakers are also asking the central bank to consider a change to the way it calculates a company’s ability to repay debt, one of the people said. Under current rules, the RBI uses a firm’s latest results to determine the amount of free cash flow available to service loans. Creditors would prefer the RBI use more forward-looking figures, such as profit forecasts based on potential economic growth, according to the person.
“Banks make requests to us for changes in different regulations, which we examine and take a view,” the RBI said in an e-mailed response to Bloomberg queries.
Bhushan Steel Chief Financial Officer Nittin Johari didn’t respond to a phone call and e-mail seeking comment. Representatives for State Bank of India and ICICI Bank didn’t respond to e-mailed questions.
“Essar Steel has submitted a proposal to lenders, which is under consideration,” Ganesh Pai, a spokesman for the company, said in an e-mailed response to Bloomberg queries, adding that it’s “inappropriate” for the company to comment on matters between banks and the RBI. Essar Steel’s production volume for the quarter ended Dec. 31 rose 61 percent from a year earlier, Pai said.
Essar Steel has about 440 billion of debt, people with knowledge of the matter said earlier. Bhushan Steel has outstanding loans of 430 billion rupees, data compiled by Bloomberg show.