Insolvency: Promoters have put their lives into these firms, says Singal

Bhushan Steel’s promoter Neeraj Singal
As details of amendments to the Insolvency and Bankruptcy Code came to light, Bhushan Steel’s promoter Neeraj Singal, whose eligibility for submitting a resolution proposal is now under a cloud, tells Ishita Ayan Dutt in an interview why promoters should be allowed to bid and what the bidding criteria should be. Edited excerpts:

What do you think of the clause that bars promoters whose accounts have been classified as non-performing assets (NPAs) for a period of one year or more from submitting a resolution plan?

A company becomes an NPA and only then goes to the National Company Law Tribunal (NCLT). This criterion is contradictory to the Insolvency and Bankruptcy Code (IBC). The IBC became effective in December 2016. There was no option before that of going to the NCLT. 

Some of the prospective bidders are trying to vitiate the atmosphere. The world over, there is no instance of barring a promoter when almost the entire sector has gone bad. It is common knowledge that the Indian steel industry, in the last three or four years, has gone through a bad phase. The finance minister had admitted in Parliament that it was a sectoral problem. That is why the government had to come up with three different measures for the sector: The safeguard duty, a minimum import price, and, finally, an anti-dumping duty for five years. This action was taken upon realisation of the stress in the sector. Only two companies, Tata Steel and JSW Steel, are healthy. All other companies, including SAIL, are affected. The whole sector has gone bad. It cannot be a reason to bar promoters from bidding.

There is a school of thought that promoters will re-acquire assets at a discount…

If promoters do not bid then the realisation will be 10-15 per cent of the value. Promoters have put their lives into these companies. Generations have put their sweat and equity into the companies. Promoters should be allowed to bid. What one should be concerned about is ensuring that the banks make the maximum gains from the process.

How did Bhushan Steel land in this mess?

Steel is a highly capital-intensive sector. All companies had put up greenfield plants based on captive mines. In 2005, we received a coal block as a joint allocation. We had an agreement with the Odisha government for an iron ore mine. After the allocation, in 2006, we started acquiring land. In 2010, we set up the first phase of 0.2 million tonne and the second phase started in 2013, taking the capacity to 5.6 million tonnes. The plant was set up 40 km from the coal mine and 120 km from the iron ore mine. But the coal block was cancelled and the iron ore block was not allocated. 

Our Ebitda per tonne is consistent with Tata Steel and JSW Steel. We do not need a turnaround. Only a restructuring of the balance sheet is required. We never received a dispensation from the banks in the past 30 years.

But even before the ordinance, the evaluation criteria were not favourable for promoters?

The evaluation criteria go against the promoters. These are being decided by DGMs/GMs in credit committees. There should be a standard set of criteria that should apply not just to these 12 companies but to all NCLT companies. The RBI should get to work on this. The maximum benefit should go to the banks.

If a company has a debt of Rs 40,000 crore and the sustainable debt is Rs 25,000 crore, it is possible that new bidders can form a cartel and bid for Rs 15,000 crore. Why should the bid be on the basis of the liquidation value. The valuation should be done on a going concern basis. The scheme for Sustainable Structuring of Stressed Assets (S4A) was nicely designed by the RBI. The loss to banks in that respect would have been negligible. When the global crisis hit American companies, the US government took majority stakes in some of the major firms and they were restructured. Today, the anti-dumping duty is in place, and there is intrinsic strength in the Indian steel sector. It could be done here as well.

How does the weight in the evaluation criteria stack up against you?

There is a marking of 35 in non-cash, which means whether the person is a defaulter. So I will get zero in that. But I have experience in putting up a greenfield plant. The maximum weight should be given to equity to banks and net present value (NPV) of sustainable debt to be repaid.