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The board of directors of the struggling steel and wire rope maker, Usha Martin Ltd, on Monday decided to ‘explore’ sale of its profitable steel business, which has a captive coal asset, to reduce the monumental debt burden.
The ₹4,146-crore turnover company has a debt burden of over ₹4,600 crore and is making annual losses since 2013-14. It made quarterly profit, after years, in March 2018, riding on improving margins in steel making. For the full year of 2017-18, Usha Martin made a loss of ₹282 crore.
Rohit Nanda, Chief Financial Officer, told BusinessLine that the board has taken the decision in the best interest of the company and in view of consolidation in the steel industry, without any specific deal in sight. He clarified that the company did not receive any bid.
In a stock market notification on Monday, the company informed that the board constituted a “committee of independent directors” to appoint investment banks, consultants to evaluate and oversee the sale of steel business.
Banking industry sources told BusinessLine that the lenders, led by State Bank of India (SBI), insisted that the promoter-directors should not be involved in the process of sale. This was objected by the promoter faction led by Prashant Jhawar, who had otherwise nodded in favour of sale of the steel business.
In April 2017, lenders removed Prashant from the position of non-executive chairman, allegedly for not cooperating with bankers’ effort to keep the company afloat, in the face of a liquidity crunch, by offering fresh loans.
Allegedly Prashant and his father Chairman-Emeritus, BK Jhawar, were reluctant to give personal guarantee and pledge shares as insisted by the lenders. The other promoter faction led by Managing Director Rajeev Jhawar fulfilled the conditions.
Usha Martin also tried raising capital through issue of warrants, convertible into shares, on preference basis which was stalled following NCLT order based on Prashant’s objection.
According to sources, differences with Rajeev-led faction notwithstanding, Prashant is expected to co-operate with the restructuring initiative this time. Usha Martin has so far been able to service the loans, but the huge debt burden makes its existence risky.
“As a going concern without any default, Usha Martin may extract the best value for its steel business at this juncture. It is therefore, in the best interest of all sides to support the initiative,” a source told BusinessLine .
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