Jindal Stainless Ltd (JSL), India’s largest stainless steel producer, has secured Rs800 crore in so-called priority funding from L&T Finance Ltd, two people aware of the development 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 turnaround 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 company’s cash flows.
The funds will be used towards working capital needs and for capacity expansion, the people cited above said on condition of anonymity.
JSL, which has been in financial distress for the past few years returned to profitability in the third quarter of FY17, posting a net profit of Rs40.43 crore from a Rs134 crore loss a year earlier.
In the quarter ended 30 June, JSL posted a net profit of Rs41.50 crore on a total income of Rs2,203.86 crore. It reported a total income of Rs2,157.08 crore during the June quarter of the preceding fiscal.
JSL, part of the $18 billion O.P. Jindal group, underwent corporate debt restructuring (CDR) in 2009 and since then, has been trying to cut debt and reduce interest costs. In 2014, it approached lenders with an asset monetization plan, aiming to unlock the value of its operations and improve net worth.
Subsequently, in 2015 the company de-merged into two listed and two unlisted companies of which JSL and Jindal Stainless (Hisar) Ltd are listed, while Jindal United Steel Ltd and Jindal Coke Ltd are unlisted companies. JSL has since then re-distributed its debt among the de-merged entities, which have operations in Haryana and Odisha. The consolidated debt of JSL currently stands at Rs5,379 crore.
Priority funding has emerged as one of the viable options of intermediate funding needs for companies in financial distress. Mint reported in September that the interim resolution professional (IRP) for Essar Steel Ltd was looking to raise as much as Rs2,500 crore in priority funding to meet the company’s immediate working capital needs.
Emails sent to JSL, L&T Finance remained unanswered till press time.
Weak demand and cheaper imports in the past few years have been among the key reasons for financial distress for the steel sector in India, with several well known names such as Essar Steel Ltd, Monnet Ispat Ltd and Bhushan Steel Ltd are currently facing bankruptcy proceedings. However, the sector has begun showing signs of revival and posted a robust 11% growth in production in 2016-17 at 101.2 million tonnes (mt), The Financial Express reported in April citing data from Joint Plant Committee, a unit under the steel ministry.
JPC data showed that exports more than doubled during the year to 8.24mt during the year from 4.07mt a year ago. Imports, on the other hand declined by 37% to 7.42 mt during the year, making India a net exporter of steel, the report added.
Source: Mint