The Insolvency and Bankruptcy Code (IBC) has resolved cases of 94 companies with liabilities of Rs 1.7 lakh crore till March 2019 and recovery of Rs 0.7 lakh crore, implying a haircut of 58% for financial and operational creditors. However, the next round of steel asset sales is likely to see lower recovery rates, a CRISIL research report released on Thursday said.

So far, of the Rs 1.7 lakh crore of stressed asset dues, more than half or Rs 0.9 lakh crore was accounted for by 16 steel assets and the haircut required was 47%. The balance stressed debt worth Rs 0.8 lakh crore involved 78 assets spanning textiles, construction, and auto components, with haircut of around 69%. With two more cases nearing resolution, the total dues resolved in the steel sector will double to Rs 1.9 lakh crore with recovery of nearly Rs 1.1 lakh crore, which translates into a haircut of 42%.

However, the matrix of debt resolved/ inching towards resolution in steel space is skewed towards large firms with 84% of the Rs 1.9 lakh crore of liability being held by 3 integrated steel players. “This is largely to do with attractive demand-supply dynamics and higher realisations in the flat steel space. Location, integration across the value chain, and scale of operations were the additional advantages,” the report said.

The next lot of companies, among the top 17 stressed assets in steel sector with dues of Rs 62,000 crore as on March 2019 and seeking resolution through IBC, could however, see lower recovery rates. These are smaller assets are in long integrated, sponge iron, and flat-rerolling space.

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Considering the benchmarks of similar assets that have been resolved over the past three years, the recovery rates are expected to be lower, driven by specific factors in each major segment, CRISIL said. In long steels, demand is expected at 6-7% over FY20-21 led by government spends in housing and railways, but competition from SAIL, RINL and JSPL would intensify for smaller firms. Also, earlier benchmarks for recovery for similar cases under IBC was estimated at just 32%. In sponge iron, demand is expected to moderate to 3-4% over FY20-21 with larger players and substitution by scrap and pig iron likely to curb growth. Similarly, a slowdown in automotive and consumer durables sales and global trade barriers is tipped to rein in growth in flat steels to around 5-5.5% over the next two fiscals from 7% earlier. “Also, the top two cases under resolution have received bids indicative of 29-31% recovery only,” the report added.



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