ICICI Bank sells Essar Steel loan exposure to Edelweiss ARC

Mumbai: ICICI Bank Ltd has sold part of its loan exposure in debt laden Essar Steel Ltd to Edelweiss Asset Reconstruction Co. Ltd, two people familiar with the development said.

“The bank has sold around Rs.1,000-1,500 crore worth of loans in Essar Steel to the ARC (asset reconstruction company) this month. ICICI Bank will continue to retain the working capital exposure it has in the company,” one of the two people cited above said.

With this, ICICI Bank has become the third lender to have sold its exposure in Essar Steel Ltd to Edelweiss. In January, Federal Bank had offloaded its Rs.70 crore exposure, while HDFC Bank had sold about Rs.300 crore worth of its exposure in Essar Steel to Edelweiss ARC last year.

The move comes after banks had given a deadline to Essar Steel to find a buyer for majority stake in the company at the earliest. On 4 May, Mint reported that the lending consortium to Essar Steel had asked its promoters to find a buyer for a majority stake by June-end. The process is yet to find any suitable buyer, a banker who is part of the consortium said, requesting anonymity. The banker is the second person cited above.

“Now that the process to locate a buyer has more or less failed, banks are evaluating other options in hand. Since the account is an NPA (non-performing asset) with most banks in the consortium, lenders may look at some basic restructuring of the loans. The S4A scheme is also available. Lenders are planning to mandate an evaluation study to see how to approach the issue,” the banker said on conditions of anonymity.

Loans to Essar Steel, which is controlled by the Ruia family, are among a large pile of bad loans that banks are trying to remove from their balance sheets.

“There is rising pressure on banks to clean up their balance sheets by March 2017. So while they will continue to use various options to restructure and recover their debt to stressed companies, ARCs would remain a preferred route for many. We should see more cases of ARC sales during the year,” said Dinkar V, partner- restructuring, EY.

Essar Steel said in November that it had around Rs.30,000 crore of debt on its books. In November, Essar Steel mandated SBI Capital Markets Ltd and ICICI Securities to find a strategic investor, but a deal is yet to be closed.

A number of banks have already classified Essar Steel as a NPA in the October-December period. In an interview on 17 March, Jatinder Mehra, director at Essar Steel, admitted as much.

Like other steel makers, Essar Steel’s problems have to do with lower global demand and price for the steel products, and an increase in cheap imports. A troubled expansion plan has exacerbated matters.

Essar Steel invested Rs.55,000 crore to build the Hazira steel complex with a capacity of 4.6 million tonnes per annum in the first phase and 10 mtpa eventually. Expansion from 4.6 mtpa to 10 mtpa was affected by many factors, including delays in environmental approvals for a slurry pipeline, damage to another slurry pipeline, and non-availability of contracted natural gas, resulting in lower capacity utilization.

Spokespersons for ICICI Bank and Essar Steel both declined comment.