ESL debt: China’s SDM now seems the best bet for lenders

Lack of interest among bidders has forced lenders to look for options beyond strategic debt restructuring (SDR) for a change in management in Electrosteel Steels Ltd (ESL), say sources.

According to recent RBI norms, lenders can recover their dues in a company that has defaulted on payments after debt restructuring by converting loans into equity and selling 51 per cent to a new promoter.

Umang Kejriwal’s ESL is the first company where bankers want to invoke the SDR rule.

They were expecting to recover nearly ₹2,508 crore in bad debts through the deal. But no party was ready to cough up that much for a stressed asset. Instead they wanted wanted customisation of the deal outside the scope of SDR.

The consortium of over two-dozen lenders, led by SBI, therefore zeroed in on the best alternative proposal, from ESL’s Chinese technology provider, Shandong Metallurgical Design Institute (SDM).

The Chinese company, backed by London-based fund First International, wants to acquire 51 per cent from the market. At current prices of ₹3.33 a share, that will cost SDM barely ₹500 crore, way lower than the SDR offer.

Banks will miss out on the up-front recovery option. But on the brighter side, the Chinese company has come up with the best offer to service the loan and regularise the account.

Sources say bankers have in-principle agreed to the proposal and have begun due diligence to verify the abilities and past records of the Chinese company before they sign on the dotted line.

Once the suitability of SDM is established, each of the lenders has to take Board approval to sign the agreement.

“The process is lengthy and should take time. The earliest we can expect to wrap up the deal is in March,” said a bank official.