Recovery of bad debt from steel companies to dip

Our Bureau Mumbai | Updated on June 20, 2019 Published on June 20, 2019

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Aggressive bidding seen in Round 1 will be found lacking in Round 2, says Crisil

The next round of large debt resolution in the steel sector under the Insolvency and Bankruptcy Code (IBC) is expected to see lower recovery. As of March, there were 17 stressed steel assets with a total outstanding liability of ₹62,000 crore seeking resolution.

Unlike the first wave of debt clean-up, the upcoming resolution cases shall largely be smaller assets concentrated in the long integrated, sponge iron and flat re-rolling space, said credit rating agency Crisil. Moreover, the global trade barriers will also curb exports of flat re-rollers and suppress demand for the small steel assets put on the block, it added.

The government has managed to recover ₹70,000 crore of the ₹1.7-lakh crore defaulted by 94 companies, translating into a haircut of 58 per cent for financial and operational creditors. At ₹90,000 crore, just 16 steel companies accounted for nearly half of the bad debt. Their resolution required a haircut of 47 per cent.

The balance debt of ₹80,000 crore of 78 companies in the textiles, construction and auto components sectors was resolved with a haircut of about 69 per cent, said Crisil.

The steel sector is set to see 28-30 million tonne in capacity addition. This will keep utilisation levels at 80-82 per cent till FY24. This will curb aggressive bidding during the next round of stressed assets resolution, it said.

Published on June 20, 2019
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