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JVSL revamp plan to hurt all stakeholders

Rukmini Priyadarshini

BANGALORE, Dec. 5

IN an unusual financial restructuring model, Jindal Vijaynagar Steel Ltd plans to get all stakeholders ``to bear the pains of the overhaul''.

The interest rate on about 25 per cent of JVSL's debt of Rs 3,100 crore to various financial institutions is to be linked to the prevailing steel prices over the next 15 years. The company's lenders include ICICI, IDBI, UTI, IFCI, LIC and GIC.

According to JVSL's plan (authored by Andersen Consulting), the shareholders would (first) reduce their holding; about 30 per cent of the equity is to be converted to 0.01 coupon, 15-year preferential shares, to be redeemed at par in 2016, tantamount to backloading the return on their investments.

An equivalent amount of debt would then be converted to equity, to be followed by linking interest charges on the remaining debt (25 per cent of current levels) to international steel prices.

According to a senior company official, JVSL has informed SEBI about the plan to modify the equity. The plan is subject to the approval of the financial institutions, led by ICICI.

Once that is obtained, the company would approach the Karnataka High Court for permission ``for reduction in the capital''.

Over Rs 1,200 crore of its final project cost of Rs 6,000 crore was incurred because of time overruns. Therefore, there are no matching assets for the Rs 1,200 crore. ``Even under the best of conditions, JVSL cannot hope to repay its debts from the reven ues generated from the Rs 4,800 crore of assets,'' the official said.

And the conditions for the steel industry are far from good. Steel prices have fallen to about $210 per tonnes, down from $240 in April.

What would happen to JVSL's debt-service obligations if matters do not improve? The company's interest payments are to be linked to the domestic realisation price of steel. Further, three slabs have been identified for calculating the interest rates base d on the favourableness of steel prices - stress, moderate and boom pricing. Thus, the FIs would get a better return when steel prices rule high and a lower return when prices languish.

JVSL said all its cash-flow projections assume 100-per cent capacity utilisation: It claims its consistently good operational performance and technological reliability have prompted the cash-flow projection.

``We have not taken many soft options either. This is a pro-active move, not a post-mortem,'' the official said of the restructuring plan.