The Edelweiss Group, part of the lenders’ consortium to Essar Steel Ltd., is willing to provide nearly Rs 800-crore interim financing to help the steelmaker stay afloat during insolvency proceedings, three people aware of the matter told BloombergQuint requesting anonymity.
Through its stressed asset funding business, Edelweiss has agreed to fund Essar Steel for six months at an interest rate of 15-20 percent, the people quoted above said. The financial services major has discussed the proposal with Satish Kumar Gupta, the interim resolution professional in the Essar Steel insolvency case. It’s now waiting for an approval from the committee of creditors, as is the norm under the Insolvency and Bankruptcy Code, two of the three people quoted above said.
Essar Steel was among the first list of dozen companies – contributing a quarter of Indian lenders’ bad loans – that the Reserve Bank of India had identified for insolvency proceedings. The steelmaker, among the largest insolvency cases with a debt of over Rs 40,000 crore, had challenged the move in the Gujarat High Court but failed to get relief.
Interim financing is essential to keep Essar Steel as a going concern till lenders and the IRP finalise a restructuring plan within the stipulated 270 days.
Lenders in the committee of creditors are generally not very keen on approving financing offers as they don’t want to increase their exposure to any account classified as a non-performing asset. There is also the problem of provisioning against these additional loans, as lenders are not clear whether they would have to provide for half of these funds upfront. Any funding proposal outside the lending consortium requires the approval of the committee of creditors.
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Edelweiss Asset Reconstruction Company Ltd. is a member of the lending consortium to Essar Steel. The ARC had purchased the steel company's loans from HDFC Bank Ltd., Federal Bank Ltd., Axis Bank Ltd. and ICICI Bank Ltd. However, the interim funding proposal has come from a different arm of the Edelweiss Group.
In a meeting held on Wednesday, the insolvency professional apprised lenders of the Edelweiss offer. Gupta is from turnaround and interim management firm Alvarez & Marsal India, which was appointed by a consortium of lenders led by State Bank of India for the insolvency case.
Essar Steel and Edelweiss have declined to comment in response to separate emailed queries from BloombergQuint. Alvarez & Marsal India is yet to respond.
Lenders have sought details from the IRP about the end use of these funds. They also want to know what Gupta intends to do with the revenue of the company, now that he has asked them to suspend tagging these funds as repayment, according to the people quoted above.
In a previous meeting, the IRP had asked the lenders to allow the company to use the funds to keep its operations moving. The steelmaker earned around Rs 200-250 crore a month through its operations, which was entirely being tagged by lenders towards payment of interest on the loan exposure, according to the first of the three people quoted above.
On its part, the Edelweiss Group has been actively looking for funding opportunities in India’s stressed asset space for some time now. It had tied up with Canada's second largest pension fund, Caisse de Dépôt et Placement du Québec, in October 2016 to scout for stressed asset funding opportunities in India. Under the deal, CDPQ would invest $750 million in India through Edelweiss, most of which would go into funding stressed assets. A part of these funds was invested in the ARC arm of the Indian company.
At the time, Rashesh Shah, chairman and chief executive officer of Edelweiss, had said that the financial services company wanted to invest Rs 12,000-14,000 crore in the stressed asset space, which included the funds from Canada.
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