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Malavika, Bellary Steels to become FI-managed

Rabindra Nath Sinha

KOLKATA, June 27

TWO steel companies -- Malavika Steels Ltd and Bellary Steels & Alloys Ltd -- are going to become financial institution-managed outfits and the process should begin in a matter of days, according to highly placed sources.

The most significant point to emerge is that FIs are stepping in with the concurrence of the respective promoters -- Rais of New Delhi in the case of Malavika and Mr S. Madhava in the case of Bellary -- to salvage the projects in which they already have very substantial exposure.

The two companies are neck-deep in debt as also victims of serious time and cost over-runs. The promoters are unable to chip in extra funds required to make them operationally sound and financially viable.

Malavika's half-finished facility is located at Jagdishpur in the Sultanpur district of UP. Bellary has its facility at Bellary in Karnataka.

The broad strategy determined by FIs envisages writing down of equity, conversion of loans extended by them into equity and pumping in of fresh funds to complete key facilities. Malavika's existing equity is proposed to be written down by 40 per cent. In the case of Bellary, it is, perhaps, a little less.

Consequently, FIs will come to have majority stake. IFCI is the lead FI for Malavika while in the same slot for Bellary is IDBI.

For both the companies, FIs have zeroed in on Dr Saibal Kanti Gupta, currently vice-chairman of Jindal Vijayanagar Steel Ltd, for the non-executive chairman's position. After the matter is formalised in all respects, it will be Dr Gupta's responsibility to appoint MDs and revamp the boards. Dr Gupta, before joining the private sector, held the posts of CMD of MECON and MD of SAIL's Rourkela Steel Plant.

FIs are going to prescribe a strict mechanism for monitoring utilisation of funds and cash-flows by the new management. Also, they will appoint auditors of their choice.

The private sector steel projects that were launched in the post-liberalisation phase were found by FIs to have not only slipped in implementation but also accentuating their financial problems by diverting a chunks of funds the promoters had borrowed fr om them specifically for their steel ventures.

The diversion was in unrelated ventures like telecom and power. FIs, finding the going tough for them, decided on stringent action against promoters by between late 1998 and mid-1999.

That the position did not improve for them beyond a point is borne out by their latest move for Malavika and Bellary; of course with the concurrence of the existing promoter-led management.

In Malavika, Mr Vinay Rai is the Chairman and Mr Anil Rai is the co-chairman. Mr S.K. Mittal and Mr Rajeshawar Singh are whole-time employee-directors. In Bellary, Mr Madhava, who is the promoter, leads the operations team.