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Essar Steel interim resolution professional looks to raise Rs2,500 cr in priority funding

LiveMint logoLiveMint 04-09-2017 deborshi Chaki

The interim resolution professional (IRP) for Essar Steel Ltd is in talks with potential lenders to raise as much as Rs2,500 crore in priority funding to meet the company’s immediate working capital needs, two people aware of the development said.

Essar Steel’s IRP, Satish Kumar Gupta of global turnaround advisory firm Alvarez and Marsal, reached out to lenders including a global structured credit fund in August to raise the required capital, the two said on condition of anonymity. The fund-raising is being done under the interim funding framework of insolvency proceedings, they said.

Priority funding allows a new lender to come in on the promise that it will be accorded higher priority during the payout phase, once a turnround is effected or the firm is liquidated. In such transactions, existing lenders may cede charge on the assets in favour of a new lender, which has the first right on the firm’s cash flows. This is typically done to ensure the underlying asset quality does not deteriorate till the time a resolution plan is approved and put in place.

In a similar concession last year, a consortium of Essar Steel lenders approved a ‘holding on operations’, which allowed it to plough a part of its revenue back into operations.

Essar Steel owed lenders around Rs45,000 crore, of which Rs31,671 crore had become non-performing as of 31 March 2016. The company owes as much as 93% of this amount to a consortium of 22 creditors led by State Bank of India, Mint reported in August.

Responding to a query, a spokesperson for Alvarez and Marsal said, “As a policy, A&M does not comment on client or potential client engagements.”

An SBI spokesperson said: “As a matter of policy, SBI doesn’t comment on any individual account and its treatment.” A request for comment sent to Essar Steel did not elicit a response as of press time.

The Economic Times reported in September that the IRP is seeking Rs1,000 crore in loans from the company’s existing lenders to keep the firm running, and easing of restrictions imposed by lenders on the use of funds, citing people familiar with the matter.

Essar Steel, one of the 12 cases identified by the Reserve Bank of India for early bankruptcy proceedings, has meanwhile drawn interest from potential suitors. Mint reported in August that Tata Steel is considering buying stressed steel assets, including Essar Steel, which would give the firm a foothold in west India. CNBC-TV18 reported in August that apart from Tata Steel, JSW Steel Ltd, ArcelorMittal, SSG International, Posco and Liberty House had informally expressed interest in acquiring a controlling stake in the firm.

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