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Tata Steel eyeing acquisition of firms in RBI list of large NPA accounts

LiveMint logoLiveMint 25-07-2017 Soumonty Kanungo

Kolkata: Tata Steel Ltd is closely following the insolvency resolution process initiated by banks against embattled steelmakers for inorganic growth opportunities, a top executive said on Tuesday.

If the process for insolvency resolution is found to be “transparent, which it looks like from the way the code has been drafted”, Tata Steel will evaluate opportunities for acquiring existing manufacturing capacity, said Koushik Chatterjee, group executive director (finance and corporate).

Bhushan Steel Ltd, Electrosteel Steels Ltd, Essar Steel Ltd, and Monnet Ispat and Energy Ltd are the steelmakers in the RBI list of 12 large NPA accounts referred to National Company Law Tribunal (NCLT) for bankruptcy proceedings under the Insolvency and Bankruptcy Code.

The company has headroom for further expansion at Kalinganagar in Odisha, where it is setting up an integrated 6 million tonne (mt) plant in two phases of 3mt each. Kalinganagar alone can accommodate up to 16 mt of manufacturing capacity, and expanding there will be cheaper than setting up a plant from scratch, T.V. Narendran, the company’s managing director for India and South East Asia, had said in an interview in January.

“There are huge organic (growth) opportunities,” Chatterjee said on Tuesday on the sidelines of the annual general meeting of Tinplate Co. of India Ltd, of which he is chairman. Inorganic growth opportunities arising out of insolvency resolution will be weighed against organic opportunities at Kalinganagar and Jamshedpur, he added.

Between the two units, Tata Steel can scale up production capacity to 25-30mt, Narendran had said. Despite being an old plant, the capacity of the Jamshedpur plant can be ramped up to 12-13mt from 10 mt, he added.

Chatterjee said Tata Steel is in the process of examining the “master plan” of the Jamshedpur plant, indicating that the company has already started work on removing bottlenecks to scale up production.

When considering existing capacity to take over, “you have to see whether it fits”, Chatterjee said.

Steelmakers such as Tata Steel and JSW Steel Ltd are seeing dispute resolution under the Insolvency and Bankruptcy Code as an opportunity to acquire stressed assets cheap.

The new dispute resolution process took a long time to get initiated, Chatterjee said. The people responsible for taking it forward will now have to form a view on “how they want parties like us to participate”, he added.

Atanu Mukherjee, president and member of the management board of consultancy M.N. Dastur and Co., is of the view that Indian banks collectively will have to write down their exposure to the steel sector by Rs1.6 trillion over time. They will have to write down their loans by 50% of their face value to reflect “fair market value”, he said in an interview.

Because the insolvency resolution mechanism in India is still in its early days, there is a possibility that many of the stressed assets may have to be sold at “pennies to the dollar” compared with what they might fetch after an orderly restructuring, Mukherjee had said.

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