JSW Steel has acquired the stressed assets of Bhushan Steel and Power Limited (BSPL) after successfully winning the bid battle against Tata Steel. It expects to take over the operations of BSPL by the end of this month. The Committee of Creditors (CoC) has cleared JSW Steel’s bid for acquisition of BSPL. Further the company is waiting for their resolution plan to be approved. JSW Steel expects these formalities to be dealt with by the end of current month.
The History of BSPL and insolvency
BSPL was incorporated in the year 1995, in Sahibabad. The company began to grow quickly after importing advanced machinery from Japan. The Steel sector companies had really conducive conditions for growing due the ever increasing demand of steel from the Automobile sector. In Sahidabad, the company had limited access to resources for increasing business and production. So in 2003 the company decided to build an integrated steel plant in Odisha.
The banks were ready to sanction loan to the company for building the plant as the overall steel sector was booming. When the banks analyzed the order book of the company, they had huge orders from big automobile players like Maruti Suzuki and Mahindra any hesitations the banks had was gone and they were ready to finance. The construction of the first phase of the Odisha steel plant began in 200. The company was promised the availability of raw materials for the plant.
The prices of Steel started to fall after the 2008 recession and reduced the profitability of steel companies. The first phase of construction was completed by 2009-10 but BSPL was still shouldering a loan of Rs 11400 crore. Still the company was able to acquire loans for the construction of second face.
BSPL’s problems did not stop as the steel prices dropped to $300/ tonne in 2012 from a peak of $1265/ tonne in 2008. The company was lacking behind on payment their interest on loans. In 2013, the new plants furnace exploded during testing and it faced backlash. In 2014, the company’s profit was mere Rs 62 crore while the interest alone being Rs 1600 crore per annum. Even after all this, BSPL was able to secure a loan of Rs 18000 crore against collateral of company’s shares. The company was not able to repay its dues and defaulted on payments.
The filing of Insolvency petition
As BSPL was not able to pay their dues, banks decided to file a petition for insolvency against BSPL in 2016. Punjab National Bank (PNB) was the lead bank among the consortium of lenders to file the petition for insolvency against Bhushan Steel and Power Limited on 26th of July, 2016. BSPL owed a total of Rs 38248 crore to the various banks and other creditors. The National Company Law Tribunal (NCLT) gave approval to the banks to start with the insolvency proceedings and recover loans that the company had defaulted on.
JSW Steel acquiring BSPL and future activities
As the stressed assets of the BSPL were put up for auction to recover the loans. The existing steel giants like Tata Steel and JSW Steel entered a bidding battle and JSW Steel won. JSW revised its initial bid of Rs 17000 crore to Rs 19650 Crore to surpass Tata Steel’s bid. The company is waiting for National Company Law Tribunal’s approval of the resolution plan. The Steel company has a ready team to manage the operations that the company expects to get a hold of by the end of the current month of March, 2019.
JSW’s first challenge is to produce at the maximum approved limit of 2.8 million tonnes per annum rather than the current production of 1.8 million tonnes per annum. The activities will need some modifications. Further it should be properly cooperated and synchronized which will take about 6 months to bring in action. Also boosting the morale of the currently working employees is necessary to improve their productivity