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Banks ask Bhushan to sell & lease back critical assets

A day after effectively taking charge of Bhushan Steel, lenders have delivered another punch.

The bankers’ consortium, which met in New Delhi on Monday, has asked the troubled steel maker to sell and lease back some of its critical assets to reduce debt as the borrower is finding it difficult to raise equity from the market.

This is a part of the roadmap drawn up by SBI Caps, the merchant banking arm of State Bank of India (SBI), for the recovery of Bhushan Steel, which has borrowed close to Rs 40,000 crore from about 35 lenders.

According to the roadmap, the steel company has been asked to deleverage by repaying debt. However, given the company’s present problems which had led to a free fall of its share price, raising equity through a qualified institutional placement was not a viable proposition at this point in time, a banker who attended Monday’s meeting, told Business Standard.

The share price of Bhushan Steel has fallen 62% since August 5, when its vice-chairman and managing director was arrested. The stock today closed at Rs 144.90 on Tuesday.

Bankers said four assets had been identified by the steel company and these include the coking coal plant. It is not immediately known how much debt will be reduced through the sale and lease-back.

According to bankers, there is no dearth of buyer for the facilities and SBI Caps is in the process of identifying prospective bidders which will include global steel producers.

Banks have tightened their grip on the company after its vice-chairman and managing director Neeraj Singal was arrested by Central Bureau of Investigation (CBI) following allegation of giving bribe to suspended Syndicate Bank chairman and managing director SK Jain.

Bankers said the forensic audit, as decided by the consortium on Monday, will be carried out by an external agency and will seek to find out whether funds were diverted or not used for the purpose for which it was given. It will also find out whether there was creation of genuine assets.

These steps were taken even though the loan continues to be standard and has not become non-performing. However, following the liquidity problem that Bhushan – one of the most debt laden steel maker of the country – is facing, the loan is now categorised as Special Mention Account 2, that is overdue over 60 days.

A concurrent auditor will also be appointed to monitor cash flows on a daily basis and an independent engineer will look at the operations of the company.

“Given the magnitude of the exposure and the number of lenders involved, banks will take a huge hit if the loan turns bad,” said a senior executive of a public sector bank.

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