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Madhumita Chakraborty
NEW DELHI, July 26: The state-run Steel Authority of India (SAIL) has roped in term-development institution IDBI to work out a capital restructuring package. The steel major is also working on an organisational revamp in a bid to ride out the slowdown.
The IDBI report, expected in six weeks, will form the basis of the steel major's financial restructuring proposal to the union government. It will also determine the behemoth's investment and fund-raising strategy in the years to come.
A nearly stagnant demand for steel, sliding profits and a stock price that is gradually bouncing downhill have turned SAIL introspective. Two months ago, it had decided to seek expert opinion before embarking on a major capital rehaul that should improve investor perception and make SAIL more market savvy.
SAIL has already placed a capital restructuring proposal before the centre in the form of a revival package for its sick subsidiary, the Indian Iron and Steel Company (Iisco). The SAIL board has proposed that roughly Rs NEW DELHI, July 26: The state-run Steel Authority of India (SAIL) has roped in term-development institution IDBI to work out a capital restructuring package. The steel major is also working on an organisational revamp in a bid to ride out the slowdown.
The IDBI report, expected in six weeks, will form the basis of the steel major's financial restructuring proposal to the union government. It will also determine the behemoth's investment and fund-raising strategy in the years to come.
A nearly stagnant demand for steel, sliding profits and a stock price that is gradually bouncing downhill have turned SAIL introspective. Two months ago, it had decided to seek expert opinion before embarking on a major capital rehaul that should improve investor perception and make SAIL more market savvy.
SAIL has already placed a capital restructuring proposal before the centre in the form of a revival package for its sick subsidiary, the Indian Iron and Steel Company (Iisco). The SAIL board has proposed that roughly Rs1,500 crore of its Rs 4,781 crore loans from the Steel Development Fund (SDF) be converted into government preference shares and other forms of capital.The bigger capital base was intended to brush up SAIL's balance sheet and improve its borrowing muscle, so that it could garner funds for modernising Iisco. The fate of that proposal too will depend on the recommendations of the IDBI.
The company decided to seek expert advice a couple of months ago because it now has more reasons that one for opting for a financial restructuring. SAIL will, for instance, have to decide how it plans to raise funds for capital investment projects.
It has recently completed a modernisation programme at its Rourkela, Bokaro and Durgapur plants, but loose ends still remain. The Bokaro Steel Plant needs a cold-rolling mill, the Rourkela plant needs balancing facilities while the Durgapur Plant requires finishing lines. The company had to borrow heavily for the capital investment projects and the interest outgo and depreciationcharges for the Rs 12,000-crore investment have begun to show on SAIL's balance sheets.
Aided by a massive equity base of Rs 4130.40 crore, SAIL manages to retain a healthy debt to equity ratio of 1.76:1, up from 1.49:1 in 1995-96, but the growing interest burden does not encourage further borrowings.
Apparently the SAIL board had an open mind about raising a fresh equity issue. The company already has the approval of the union cabinet for floating shares of upto five per cent of its share capital.
The centre had allowed SAIL to issue shares of up to 10 per cent of its paid-up equity in 1995-96, but SAIL was advised by its merchant bankers to keep the issue small. The GDR brought a fresh five per cent of SAIL stock into the capital market.
The company consequently, does not need a fresh mandate from the centre if its wishes to mop up funds, by issuing stocks equal to another 5 per cent of its equity capital. The SAIL board is unlikely to favour this option at a time when the company's scrip is quotingbelow par at the bourses. Last week the SAIL stock traded at roughly Rs 7.80 a share on Dalal Street.
The tumbling profits of steel companies have meant low confidence in steel scrips and a downslide in their earnings per share. SAIL has not been an exception. Its earnings per share dwindled to Rs 1.25 in 1996-97 from Rs 3.19 the year before and continued to be under pressure last year.
The company's interests and finance charges touched Rs 1,554 crore last year, from Rs 1179 crore in 1996-97 and Rs 808 crore the year before. Depreciation charges increased by 15 per cent in 1997-98 to Rs 795 crore.
The steel giant will now have to choose its priorities. It will have to decide what to investment in, how much to invest and how to invest. The IDBI will recommend the options.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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