Mumbai, Oct 27: Term-lending institutions are likely to infuse fresh funds towards at least three private sector steel projects -- Malvika Steel, Ispat Metallic and one Essar project and decided against additional funding to Rajinder Steels. They have also decided to dump the unviable steel projects in the cold. The decision was taken at the inter-institutional meeting held in Mumbai on Tuesday.However, the institutions have decided to help out the non-viable projects by providing non-fund based support. They are also willing to reschedule loans to these projects, IDBI chairman GP Gupta told The Financial Express. "We will infuse fresh funds in some of the steel projects. But we are putting in a whole set of fresh conditions. We will have a clear picture within next two days," he said. On the Malvika steel project, the institutions want the promoters to contribute 20 per cent of the cost overrun.
"We will pull the plug from the unviable projects. There is no question of supporting them. However,larger projects will get institutional funds provided the promoters come forward with fresh equity," another source said. The institution had their first round of meeting on September 26 to take stock of the situation and firm up the institutional view on the steel sector exposure. The FI chiefs also discussed a possible support mechanism through additional funding or reschedulement of old loans on a case-to-case to basis.
"We do not want to create a deadlock for the promoters provided they show keeness and motivation in completing the projects in accordance with the conditions laid out by us,'' institutional officials said.
The institutions have already framed "ten commandments" for the steel sector exposure. The conditionalities include:
The promoters shall pledge their equity with the institutions which can be encashed in case of default; The institutions can convert all additional loans into equity at par whenever they desire; The additional loans can be prepaid if the cash flowsimprove subsequently; A trust has to be created in which the revenues generated by the companies can be deposited and will be used for meeting the institutional dues; The companies should allow the audit of their firms by the auditors to be appointed by the FIs and have to allow concurrent audit of their finances; The promoters should facilitate inspection of the projects by engineers appointed by the FIs; and The promoters have to seek permission from the FIs before initiating other projects. The institutions are also insisting that promoters of steel companies should bear at least 20 per cent of the cost overrun as a precondition to fresh exposure in the steel sector. Besides, the institutions have also decided to carry out a fresh viability study of the steel projects.The total institutional exposure in the private sector steel sector is estimated to be over Rs 20,000 crore forcing the institutions to call the emergency meeting to discuss a bailout package for the beleagueredsteel industry.
The institutions have also moved the finance ministry seeking duty relief to the steel companies in the present context. "All we want is some sort of a comfort which will encourage us to take fresh exposures in steel industry," sources said. The institutions have urged the government for a 15-20 per cent anti-dumping duty on hot-rolled products.
"This is a tough year for the steel industry. However, things will look up once the anti-dumping duty is imposed. We will not ditch the larger and viable projects," sources said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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