Stressed steel assets may see lower recovery rates in round 2 of resolutions

PTI Mumbai | Updated on June 20, 2019 Published on June 20, 2019

Even though recovery rates from stressed assets in the steel sector have been higher till now, the same is expected to dip in the next round of resolutions, a report said on Thursday.

Operational and financial creditors have had to take a 58 per cent haircut on underlining dues of Rs 1.7 lakh crore in the 94 companies resolved through the Insolvency and Bankruptcy Code till March 2019, the research wing of rating agency Crisil said.

Sixteen of the accounts were in the steel sector, where the haircut required was a lower 47 per cent, as compared to the 69 per cent for other sectors.

Within the steel sector, 17 new assets involving outstanding dues of Rs 62,000 crore are coming up, it said. “Next lot with debt outstanding of Rs 62,000 crore could see lower recovery rates,” it said.

Unlike the first wave of debt clean-up, the upcoming resolution cases would largely be smaller assets concentrated in the long integrated (42 per cent of Rs 62,000 crore in six accounts), sponge iron (38 per cent in six accounts), and flat-rerolling space (three accounts, 18 per cent), it added.

Crisil estimates that the flat steel segment’s growth is expected to moderate to 5-5.5 per cent over the next two fiscals, from 7 per cent over the previous two fiscals because of a slowdown in automotive sales and sedate demand for capital goods.

In the long integrated space, even though demand is slated to go up, capacity ramping by established players such as SAIL, RINL and JSPL would hurt stressed players, it said.

For steel intermediaries and sponge iron, demand was expected to moderate to 3-4 per cent growth, while in the flat re-roller segment, large players would command a larger share, it said. The agency added that bidders would not be aggressive in the next round, given the high capacity addition expected to take place.

The steel sector is set to see 28-30 mt capacity addition, apart from ramp-up of under-utilised capacities for accounts resolved in the first list of cases mandated to be resolved through the National Company Law Tribunal.

The agency added that this would ensure that capacity utilisation rates continue to be at a high of over 80 per cent till fiscal 2023-24, which was likely to dent the bidding, it said.

Published on June 20, 2019

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