The company created large capacities through debt funding to cater to global demand, but with slowdown in international markets, it was hit badly. This capacity creation was accompanied by a large accumulation of debt. Now, it faces a mismatch in timing of cash inflows and outflows, creating severe financial stress.
The company, in its 2015-16 annual report, listed factors such as demand slump, investment calls going wrong and fluctuations in foreign exchange as key reasons for its poor performance.
Its investments in retail, both in India and the UK, did not pan out as expected. While it closed operations in India, the UK business is still burning cash. The diversification into real estate, although intrinsically value creating, failed to give any asset appreciation and essentially locked up large capital.
Lenders began meetings on Monday to initiate proceedings against 12 stressed accounts identified by the central bank. Besides Alok Industries, the accounts identified by the RBI include Amtek Auto, Bhushan Steel, Essar Steel and Bhushan Power and Steel.
The list also includes Monnet Ispat, Electrosteel Steels, Era Infra, Jaypee Infratech, Lanco Infratech, ABG Shipyard and Jyoti Structures as defaulting borrowers.
These 12 accounts referred to by the RBI have debt of more than Rs 5,000 crore each, with 60 per cent or more classified as bad loans by banks as of March 2016.
Bankers are also working on short-listing resolution professionals whose names would be proposed to the NCLT at the time of filing cases.