The Telegraph
Tuesday , August 19 , 2014
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Banks tighten vigil on Bhushan

Mumbai, Aug. 18: The creditors of Bhushan Steel will take steps, including an audit, to ensure the steel maker, whose managing director is implicated in a bribery case, pays back around Rs 40,000 crore it owes.

The creditors, which include the State Bank of India, will also nominate three directors on Bhushan Steel’s board, Punjab National Bank, which leads a group of lenders, said in a statement.

The banks today asked Bhushan’s promoters to infuse more capital and also look at the possibility of divesting non-core assets. These decisions were taken at a meeting of the lenders in Delhi.

The Central Bureau of Investigation (CBI) this month detained Bhushan Steel’s managing director Neeraj Singal over allegations of offering to bribe a senior executive at the Syndicate Bank in exchange for loans. Syndicate Bank chairman Sudhir Kumar Jain has also been detained.

Family-run Bhushan Steel has denied any wrongdoing and said it had so far been able to service loans.

However, as a “corrective action plan” the banks would appoint a top auditor to conduct a “forensic audit” of Bhushan, and another to monitor its cash flow on a daily basis. The auditor will examine if the company used loans for the right purpose or if there was a diversion of funds.

The lenders will also appoint an engineering firm to monitor the operations of Bhushan and projects under expansion.

Bhushan Steel shares fell 5 percent, their maximum daily limit, on Monday. The stock hit the lower circuit filter at Rs 152.5 and trading had to be suspended for the day.

Since the bribery allegations came to light in early August, the stock has lost more than 60 per cent of its value, making it the worst-performing metals and mining stock globally, according to data compiled by Thomson Reuters .

Bankers are worried as the company suffered a loss of Rs 142 crore for the quarter ended June 30 compared with a net profit of Rs 76 crore in the same period last year.

The company’s net debt was nearly 13 times its operating profit for the year ended March, compared with nearly seven times two years earlier.

Bhushan Steel’s board last week approved selling shares to raise up to $1 billion but has not set a timeline.

“The company has requested for some time (to cut debt) given the prevailing circumstances. Since the equity infusion will take time, lenders advised the company to monetise the non-core assets which was agreed to by the company as a part of deleveraging exercise and the company was also advised to come up with a definite time frame,” the banks added.

The SBI, which has an exposure of Rs 6,000 crore, had earlier called for the appointment of a management agency to run the company. However, the consortium of banks vetoed this proposal.

Meanwhile, the company informed the bankers that the professional management of the firm was still intact as on date and operations were running normal.

During the meeting the company presented the current operational performance, organisational setup and details of key management personnel.

“It was observed that in terms of volume of production, there has been improvement in performance and in terms of value, it is according to the estimates,” PNB said.

The banks found Bhushan’s operations “satisfactory”, it added.