Delay in IBC resolution a concern: JSW Steel chief

JSW Steel is moving forward with its huge expansion plans despite the current slowdown and the near-term weakness in steel demand. After accepting the Letter of Intent for the insolvent Bhushan Power and Steel, the company has been waiting for final judgment from the NCLT on the case for four months. In an interview with BusinessLine , Seshagiri Rao, Joint MD, JSW Steel, discussed various issues and future plans of the company. Excerpts:

Waiting indefinitely is a problem because we have to commit funds. We are earmarking funds for acquisition by withholding or delaying organic growth. In the Bhushan Power case, the hearing was completed (in April) by the NCLT and we are waiting for the judgment. Resolutions are getting delayed due to various reasons. The resolution applicant wants past liability such as litigations, contingent liabilities and other liabilities to be extinguished. After taking over sick companies, applicants are finding that old cases are springing up. These issues needs to be clarified by the government or Supreme Court. If the old litigations involving tax departments are going to return, then bidders have to discount the value they are paying. The conflict between the Insolvency and Bankruptcy Code (IBC) and other laws is another major issue. While Section 238 of the IBC says that it has an overriding powers on all other laws, Section 30 and 31 say that the resolution plan should be compliant with all other laws. These two Sections are conflicting with each other. Moreover, there are now differences among creditors on how to share the amount recovered. When the IBC was introduced, there was a waterfall mechanism, with the maximum amount going to the secured creditors. However, recent judgments have said ‘similarly placed creditors’ should be fairly treated. There needs to be clarity on whether secured, unsecured and operational creditors can be treated similarly. Under Section 12A, the committee of creditors (CoC) has to mandatorily consider an offer before NCLT accepts the insolvency application. If it is arbitrarily rejected, then it can be agitated. More litigations are being filed on this front, with the existing management coming up with offers before being dragged to insolvency.

I am not sure whether it is being used to punish the promoter. At least the credit culture in India has undergone a change. Earlier, if the exposure of a bank to a company became too big, the banks had to find a solution to reduce the risk of default. The onus has now shifted to the promoters. The IBC has brought in a big shift in the credit culture. Having said that, if a defaulted promoter is willing to clear the entire loan upfront and not in a deferred manner, then it should definitely be considered.

We need two years to turn around the company. Pellet and DRI (direct reduced iron) capacity utilisation has gone up to 100 per cent. We were operating the TMT bar mill, meltshop and blast furnace, and found that the supporting units like the oxygen plant are not ready. So we have temporarily shut down and waiting for the oxygen plant to start in 30-45 days. After this, we will initiate Phase-II, wherein stuck projects will be implemented.

Now there are litigations springing up on some liabilities which were assumed to have extinguished. The situation is believed to be same for other companies that have taken over insolvent companies. The contingent liabilities and old cases are getting agitated in the courts, notwithstanding the fact that those liabilities have got extinguished as part of the resolution plan.

We have not lost focus in India. We will be investing ₹48,000 crore between 2018 and 2021 to ramp up capacity from 18 mtpa to 24 mtpa and the downstream capacity to 9 mtpa from 5 mtpa. We are also investing ₹14,000 crore in various cost reduction projects, starting from the pipe conveyor, power, pellet and coke-oven plants. This will push up our volume by 40 per cent. While focussing on India, we are looking for presence in the global markets to serve our customers. We are not able to do it today because of the trade restrictions. The US operations will turn profitable by FY21 with all the planned investments.

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