Stressed Steel Plants Acquired Under Insolvency and Bankruptcy Code See Faster Turnaround

Stressed steel plants, acquired under the Insolvency and Bankruptcy Code (IBC) resolution process, are seeing faster returns, Swarajya reported. Despite pandemic-linked blips, domestic demand outlook remains strong, which has helped acquirers ramp up utilization levels. The ongoing steel upcycle will also mean stronger-than-expected realizations over the medium term. Consequently, acquirers may see 20 per cent faster payback and are well set to tap the brownfield potential housed under these assets. This is as per a CRISIL study of five stressed steel capacities, totalling 21 million tonne (MT), which were acquired under NCLT-1, mostly by other primary steel producers. These assets accounted for 70 per cent of total financial claims resolved or liquidated under IBC in the steel sector till March 31, 2021. For acquirers, while the debt inherited via acquisition became sustainable after the haircuts, a turnaround in operational performance led by improved efficiency was the key for a reasonable payback period of around six years, given average domestic steel prices of Rs 39,000 per tonne in fiscal 2018. Expectedly, the acquirers have been able to turn these capacities around — utilization rates improved from 65 per cent in fiscal 2018 to more than 80 per cent by the end of fiscal 2021 -- riding on operational debottlenecking, improved raw material sourcing, access to working capital and strong managerial oversight. A bigger boost, though, has come from the current steel upcycle. Global steel prices have rallied strongly driven by strong demand and higher iron ore input costs due to supply tightness. Domestic steel prices, which are driven by the landed cost of imports, have also witnessed a similar surge — at 15 percent higher in fiscal 2021 compared with fiscal 2018. Read more.