Tuesday, May 11

How a bad loan sale revived a company’s fortune

Mumbai:Distressed funds that have bought sticky loans of BMM Ispat for half the value, as banks sought for immediate realisation of the receivables, have brought about a turnaround at the steel products maker.

Edelweiss Asset Reconstruction Company, along with IndoStar Capital, bought the loans at about Rs 1,500 crore. With the company’s main plant in Karnataka’s Bellari resuming operations, they are now expecting at least 50% returns on the investment.

All stakeholders have benefited out of this, said RK Bansal, the managing director at Edelweiss ARC. “Banks have recovered money faster and at optimal prices, and the ARC has helped to turnaround the business,” Bansal said. “We are in talks with three banks to buy out the residual debt,” he said.

There were about a dozen banks that had lent to the company.

In March, Edelweiss ARC and IndoStar Capital began buying the bad loans from banks including Canara Bank, State Bank of India, Bank of India, Punjab National Bank and Axis Bank. A consortium of nine lenders constituting 80% of the secured debt sold their debt. Another three —Indian Overseas Bank, J&K Bank and Exim Bank — are also expected to sell their loans outstanding from the company.

The banks could not be contacted immediately for comment.

The debt resolution before any reference to the bankruptcy court has also saved nearly 2,650 jobs at BMM Ispat, Bansal said.

Edelweiss ARC, which now controls the company, is planning to infuse fresh capital for capacity expansion at the company. It is said to be in talks for raising a few hundred crores of foreign funds.

“The company has managed to continue operations, while a large number of employees have saved their jobs,” Bansal said.

BMM Ispat employs 992 permanent and 1,644 outsourced people. As per its planned expansion, it now needs another 1,000 permanent and 2,000 outsourced manpower.

Operations in Bellary have improved and capacity utilisation has gone up significantly after the sale of the bad loans, Edelweiss ARC said.

It is now set to recruit another 3,000 people, including outsourced workers, the asset reconstruction company said.

There are 32 vendors, contractors, transporters that are dependent on the operations of the company. Many of those entities are running shops as micro small and medium enterprises, a key focus area for the government seeking to spur the country’s economic growth.

Sale of debt before resorting to bankruptcy proceedings is gaining traction due to certainty of cash settlements for banks, without going through the long-drawn process which has taken more than 600 days in several cases, bankers said.

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