Posted on 18 Jul 2016
KKR & Co and Aion Capital Partners, a private equity firm backed by Apollo Global Management LLC, are among investors considering buying stakes in beleaguered Indian steelmakers, people with knowledge of the matter said.
KKR and Aion are weighing investments in companies including Uttam Galva Steels Ltd, backed by billionaire Lakshmi Mittal, and Bhushan Steel Ltd, the people said. Aion is also evaluating the potential purchase of a stake in Electrosteel Steels Ltd, according to one of the people, who asked not to be identified because the information is private. The three companies have about US$8.3bil of combined debt, data compiled by Bloomberg show.
Iron and steel companies in India had 3.12 trillion rupees (US$46.5bil) of total bank borrowings as of March 18, according to central bank data. Nearly a third of the outstanding bank loans to Indian steel companies had soured at the end of March, making it the worst among 16 sectors tracked by the Reserve Bank of India.
Indian steelmakers are suffering from high interest burdens and low profitability as domestic mills seek to weather a glut of cheap steel on world markets. ArcelorMittal, the world’s biggest steelmaker, told lenders to Uttam Galva Steels that it would not invest any fresh funds into the company, one of the people said. The global steel giant owns 29% of Uttam Galva Steels, according to data compiled by Bloomberg.
Some private equity firms are also weighing investments in Uttam Value Steels Ltd, a maker of steel pipes and tubes, and closely held Uttam Galva Metallics Pvt Ltd, which produces galvanised steel in the western Indian state of Maharashtra, one of the people said.
The investment funds are seeking to buy stakes in the steelmakers at the same time as the companies’ lenders restructure their debt, according to the people. Lenders are considering converting a portion of the companies’ debt into equity, the people said.
The stressed asset ratio, which measures the level of soured debt and restructured loans in the country’s banking system, rose to a 16-year high of 11.5% of outstanding lending as of March 31, according to data compiled by the RBI.
Talks are at an early stage, and the private equity firms hadn’t decided the size or structure of any deals, the people said. A representative for Aion didn’t immediately respond to an e-mail seeking comment, while representatives for KKR and ArcelorMittal declined to comment.
Nittin Johari, finance director of Bhushan Steel, said he wasn’t aware of interest from funds to invest in the company and it was too early to comment on any potential debt restructuring. Electrosteel chief financial officer Ashutosh Agarwal couldn’t be reached at his office and didn’t immediately reply to an e-mail seeking comment. Uttam Galva Steels chief financial officer Gursharan Sawhney didn’t immediately respond to a phone call seeking comment.
Buyout firms are flocking to India, lured by the prospect of buying assets at deep discounts in a nation that’s forecast to expand as much as 7.75% in the financial year that started in April, even as growth slows in China. KKR was among bidders earlier this year for the cement assets of Jaiprakash Associates Ltd, people with knowledge of the matter said earlier, before the plants were eventually sold to billionaire Kumar Mangalam Birla’s UltraTech Cement Ltd.
