Stressed steel assets may see lower recovery rates in second round; flat steel segment's growth may moderate to 5-5.5%

Mumbai: Even though recovery rates from stressed assets in the steel sector have been higher till now,
the same is expected to dip in the next round of resolutions, a report said on Thursday.

Operational and financial creditors have had to take a 58 percent haircut on the underlining dues of Rs 1.7 lakh crore in the 94 companies resolved through the Insolvency and Bankruptcy Code (IBC) till March 2019, the research wing of rating agency CRISIL said.

Sixteen of the accounts were in the steel sector, where the haircut required was a lower 47 percent, as
compared to 69 percent for other sectors.

Within the steel sector, 17 new assets involving outstanding dues of Rs 62,000 crore are coming up, it said.
"Next lot with debt outstanding of Rs 62,000 crore could see lower recovery rates," it said.

 Stressed steel assets may see lower recovery rates in second round; flat steel segments growth may moderate to 5-5.5%

Representational image. Reuters

Unlike the first wave of debt clean-up, the upcoming resolution cases shall largely be smaller assets concentrated in the long integrated (42 percent of Rs 62,000 crore in six accounts), sponge iron (38 percent in six accounts), and flat-rerolling space (three accounts, 18 percent), it added.

CRISIL estimates that the flat steel segment's growth is expected to moderate to 5-5.5 percent over the next two fiscals from 7 percent over the previous two fiscals because of a slowdown in automotive sales and sedate demand for capital goods.

In the long integrated space, even though the demand is slated to go up, the capacity ramping by established players like SAIL, RINL and JSPL will hurt the stressed players, it said.

For steel intermediaries and sponge iron, demand is expected to moderate to 3-4 percent growth, while in the flat re-roller segment, the large players command a larger share, it said.

The agency added that bidders will not be aggressive in the next round, given the high capacity addition expected to take place.

The steel sector is set to see 28-30 MT capacity addition, apart from ramp-up of under-utilised capacities
for accounts resolved in the first list of cases mandated to be resolved through the National Company Law Tribunals (NCLTs).

The agency added that this will ensure that the capacity utilisation rates continue to be a high of over 80
percent till fiscal 2023-24, which is likely to dent the bidding, it said.

Updated Date: Jun 20, 2019 19:22:09 IST