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The Ministry of Steel has raised concerns over the financial viability of Rashtriya Ispat Nigam Ltd (RINL), pointing out in an internal note that there was a “strong possibility” of it “falling into insolvency problem in the short term”.
RINL is on the Centre’s divestment radar, as it looks at reviving the fortunes of the company.
However, site visits by the transaction adviser and officials of the Department of Investment and Public Asset Management (DIPAM), to facilitate divestment procedures, were “not possible” due to vehement opposition from trade unions. Hence, drone pictures were taken, the Ministry of Steel note reads.
The note, reviewed by businessline, said the liquidity crisis has “resulted in production being curtailed”. In fact, it mentioned that RINL is “not producing at rated capacity” of 7.3 million tonnes per annum (mtpa).
RINL, the ministry document said, had a loan of ₹22,000 crore and debt servicing to the tune of ₹2,200 crore.
“There is a strong possibility of RINL falling into insolvency problem in short term under IBC (Insolvency and Bankruptcy) code,” the note mentions.
RINL, the country’s second largest PSU steel-maker, is the corporate entity of Vizag Steel and among the first shore-based integrated steel plants in the country.
“The intent of divestment/ privatisation is only with a view to facilitate massive investment and employment in Vizag to take up steel-making 2.5–3 times the present capacity,” the Ministry note said, while mentioning the opposition from the state government, MPs, employees and other stakeholders.
Accumulated losses
RINL’s FY22 annual report shows a turnover of ₹28,215 crore and net profit of ₹913 crore. Saleable steel production stood at 5.1 million tonnes (mt). Loans stood at ₹17,148 crore, including ₹12,343 crore of secured loans and ₹4,805 crore of unsecured ones.
From FY16 to FY18 it reported losses to the tune of ₹1,604 crore, ₹1,263 crore and ₹1,369 crore, respectively, before registering ₹97 crore profit in FY19. In FY20 and FY21 it reported losses again to the tune of ₹3,910 crore and ₹1,012 crore.
Since FY20 it has negative reserves and surplus, which, in accounting parlance, is indicative of accumulated losses.
In FY20, FY21 and FY22, the negative reserves stood at ₹1,618 crore, ₹2,649 crore and ₹1,715 crore.
Loans including buyers’ credit has increased from ₹1,008 crore in FY09 to ₹21,741 crore in FY20.
Sources say one of the blast furnaces at RINL continues to idle since “market conditions are not conducive”.
Union Minister of State for Steel Faggan Singh Kulaste had, in Parliament, acknowledged the poor financial condition of RINL, saying recruitments at the PSU “has been rationalised”. He said there are no plans to pool funds through IPO or Government bonds for collateral-free loans.
A major problem RINL faces is the absence of iron-ore mine linkages. Unlike other major steel mills in the country, it does not have captive iron ore mines. It sources key raw material from players like NMDC.
Hiving off surplus land
As a solution, the ministry note referred to the hiving-off of surplus land for alternative urban uses.
In fact, the Centre plans to hive off the forged wheel unit of RINL along with the monetisation of two land parcels totalling 24 acres.
“DIPAM is awaiting inputs from the transaction adviser in both the cases,” the official said.
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