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The stock of Visa Steel surged 20 per cent after the company’s lenders announced their decision to invoke Strategic Debt Restructuring (SDR) for the steelmaker.
SDR, introduced by RBI this year, allows banks to acquire 51 per cent or more stake in a company where debt restructuring has failed to revive it. The acquisition is followed by the banks’ divesting their stake to a new management that has been chosen to take over the beleaguered company.
Highly leveraged
Following a steady rise in borrowings over the past few years, Visa Steel accumulated a consolidated debt of ₹3,094 crore on its books as on March 2015. This was 13 per cent higher than that in the year-ago period. But even as debt grew, losses at the net level chipped away the company’s net worth.
Four consecutive years of net loss since 2011-12 led to an erosion of the company’s net worth last fiscal. Visa Steel posted a net loss of ₹273 crore in 2014-15, up 85 per cent from the year-ago.
The company operates a 0.5 million tonne per annum (mtpa) special steel plant and a 0.2 mtpa ferro alloys plants at Kalinganagar in Odisha. High iron ore costs and weak steel prices have hurt the company’s performance in the past.
While the decision to initiate SDR is positive for the company, given the weakness in the global steel industry a turnaround in operations will not be that easy.
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