Tata Steel’s acquisition of a heavily indebted Bhushan Steel (BSL) mill has changed the fortunes of the beleaguered facility and helped it prepay a Rs 3,000-crore loan.
The development comes after the plant witnessed a significant improvement in its financial and physical performance in the last 10 months under Tata Steel management, sources said.
Bamnipal Steel (BNPL), a wholly-owned subsidiary of Tata Steel, had acquired BSL in May 2018 at a cost of Rs 35,200 crore under the Insolvency and Bankruptcy Code.
To finance the acquisition, Tata Steel through BNPL had insured Rs 16,500 crore loan, in addition to extending another Rs 18,500 crore of inter-corporate loan totalling Rs 35,000 crore, of which the company has now prepaid Rs 3,000 crore, sources said. Besides, Tata Steel BSL, the new name of the acquired entity, has refinanced a short-term acquisition financing, with around Rs 15,500 crore of long-term loans, which has improved the risk profile of the company and set in place the long-term balance sheet of the entity. This Rs 15,500-crore is part of the refinancing of the bridge loan. The balance Rs 35,000-crore loan is now being converted into preference shares for which shareholders’ approval was obtained this week.
The credit rating of the unit has been upgraded to AA for the long term and A1+ for the short term by CARE Ratings, which is expected to reduce the finance cost, leading to better capital creditworthiness.
Among other signs of financial improvement, the earnings before interest, tax, depreciation and amortisation (Ebitda) of the company increased from Rs 1,442 crore in the nine months of 2017-18 to Rs 3,013 crore in the same period this year, while the Ebitda margin has gone up by 8 per cent year-to-date of 2018-19 (FY19), compared to a similar period last year.
The turnover of the company has jumped to Rs 15,374 crore in the first nine months of the current financial year, from Rs 12,908 crore in the previous year — an improvement of 19 per cent.
Tata Steel BSL is currently focused on reaching full capacity through decoupling and debottlenecking of existing facilities. The estimated time for the ramp-up would be 24 months. “We are also focusing on improving maintenance and safety practices at the plants, which will help in ramp-up volumes,” said a senior officer of the company.
With hot metal production at 3.1 mt in the first nine months of FY19, the company is on its way to cross 4 mt hot metal output for the first time since its inception this year. Similarly, crude steel (3.1 mt) and hot-rolled coil (2.9 mt) have shown 14 per cent and 16 per cent rise in production, respectively, in the same period this financial year.
“We have adopted three-tier integration plans i.e., excellence, elevate, and expand. In Phase 1, we are working towards stabilisation of the plant, debottlenecking of existing facilities, raise it to the best demonstrated performance, and realise synergies. In Phase 2, we plan to achieve benchmark performance in all areas to achieve rated capacity and generate strong cash flows. In Phase 3, we plan to initiate strategic capital investments to ensure sustainable returns for the stakeholders,” said a company official.