A buyout blessed by lenders
A giant fallen on tough times, debt-ridden Ispat Industries is being rescued by JSW Steel, with creditors cheering the deal that hoists back the company controlled by the brothers of the world’s leading steel tycoon, Lakshmi Mittal.business Updated: Dec 21, 2010 20:37 IST
A giant fallen on tough times, debt-ridden Ispat Industries is being rescued by JSW Steel, with creditors cheering the deal that hoists back the company controlled by the brothers of the world’s leading steel tycoon, Lakshmi Mittal.
The company has been incurring losses for all but one year over the past five years and was forced to close its plant at Dovli, Maharashtra following a cash crunch.
The agreement comes only a month after Ispat failed to repay lenders R77 crore in debt. All the three prime lenders converted their debt to equity.
JSW has a better credit rating than Ispat and will pay less interest on the acquired assets, helping the Jindals gain size while making Ispat bleed less.
Ispat’s principal lenders —ICICI Bank, IDBI Bank and IFCI — seem to have backed JSW’s bid. Chanda Kochhar, managing director & CEO, ICICI Bank, said, “The entry of a large strategic investor into the company will strengthen its balance sheet and enable productive utilisation of its capacity.”
“Resolving the lender related issues should help Ispat in addressing the burden of financing cost. This should help the company to effectively utilise the approx 3 million tones of capacity of steel production base they have built,” said Jagannadham Thunuguntla, head of research at SMC Global Securities Limited.
Ispat has agreed to repay all outstanding debt, while the Mittal brothers, Vinod and Pramod, have already pledged over 90% of their stakes with the lenders.
Lenders could convert part of R200 crore debt into equity.