In 94 stressed liability cases worth Rs1.7 lakh crore, lenders took a haircut of 58%: Report

Moneylife Digital Team 20 June 2019

Economy & Nation

The Insolvency and Bankruptcy Code (IBC) has made good progress by resolving the cases of about 94 companies with stressed liability of Rs1.7 lakh crore as of March 2019. The recovery amounted to Rs70,000 crore, translating into a haircut of 58% for financial and operational creditors and next round of stressed assets could see lower recovery rates, says a research note.

In the report, ratings agency CRISIL says, "The disaggregation of these numbers also throws up an interesting aspect. Just 16 steel assets had more than half or Rs90,000 crore to be exact - of the overall stressed debt, and the haircut required was 47%. The balance stressed debt worth Rs80,000 crore involved 78 assets spanning textiles, construction, and auto components, among others. The haircut here was around 69%."

Further, CRISIL says if we consider two steel assets from the National Company Law Tribunal-I (NCLT-I) list that are inching towards resolution or closure, total liability resolved in the steel sector will double to Rs1.9 lakh crore. Here, as much as Rs1.1 lakh crore would be recovered, which translates into a haircut of 42%. The hair cut would be significantly lower than any other sector’s debt that got resolved under IBC as of March 2019, it added.

However, according to the ratings agency, the matrix of debt resolved/ inching towards resolution in steel space is fairly skewed, with 84% of the Rs1.9 lakh crore of liability being held by just three large integrated steel players, 14% by six long integrated players, including sponge iron, billets, and TMT-thermo-mechanically treated, and the balance by nine players operating in the sponge iron, alloy steel, and re-rolling business.

"In addition, recovery is way higher for large integrated steel players (ISP) at about 63%, compared with 32-33% for long integrated players and small sponge iron and alloy steel makers. This is largely to do with attractive demand-supply dynamics and higher realisations in the flat steel space, which is the key segment of operation for large integrated steel players. Location, integration across the value chain, and scale of operations were the additional advantages," the report says.

According to CRISIL, the next lot with debt outstanding of around Rs62,000 crore (as on March 2019) by top 17 stressed assets in the steel sector, could see lower recovery rates. It says, "Unlike the first wave of debt clean-up the upcoming resolution cases shall largely be smaller assets concentrated in the long integrated, sponge iron, and flat-rerolling space. Of the Rs62,000 crore outstanding liability, 42% resides with six long integrated players, 38% with six sponge iron and pig iron players, 18% with three flat re-rollers, and the balance with alloy steel and other players."

This clean-up would infuse more investments, the ratings agency says, adding, under-utilised capacities resolved through the NCLT-I process will also ramp up.

"Capacities of five steel assets that are under the NCLT-I process now can (also because of land availability), nearly double from the current 22 million tonne (MT) to 41 MT. Further, large players such as Tata Steel and JSW are also on an expansion spree. JSW is increasing capacity by 11.7 MT and Tata by 6 MT by fiscal 2024."

"Overall, the steel sector is set to see 28-30 MT capacity addition, apart from ramp-up of under-utilised capacities (resolved NCLT-I cases). All that would keep utilisation levels at 80-82% -- the same as now – by fiscal 2024. These developments would, in turn, curb aggressive bidding during the next round of stressed assets resolution," CRISIL concluded.

Comments

User

jaideep shirali

7 years ago

Till the time that there is no accountability and criminal liablity fixed on stakeholders right from defaulters to bank executives to Directors to auditors, this vicious cycle will go on. As both corruption and political interference in banking go on unchecked, banks will make losses, go through IBC, clean up their books and demand fresh capital from taxpayers or their shareholders to repeat the cycle.

Subhash Chand Garg

7 years ago

Shame for the so called efficient private sector. Anyway whose money is this, which is used for haircuts.