'Resolution of Bhushan Steel bankruptcy is credit positive for banks'

Debt resolution of Bhushan Steel, largest among the steel companies undergoing the process, will be a credit positive for its lenders, Moody's Investor Services said today.
Bhushan Steel is one of the 12 large non-performing assets (NPAs) held by Indian banks that lenders last year took to National Company Law Tribunal (NCLT) for a resolution under the Insolvency and Bankruptcy Code (IBC).

"We expect most rated Indian banks to have some exposure to Bhushan Steel and the resolution will particularly benefit State Bank of India (Baa2/Baa2 stable, ba1), the leader of the consortium of lenders to Bhushan Steel," Moody's said.

About 40 per cent of Indian banks' NPAs are undergoing resolution under the NCLT, which started in July 2017, the agency said.

The steel sector constitutes the largest industry, with a share of about 35 per cent of these NPAs. Within the sector, Bhushan Steel is the largest account representing about 40 per cent share.

The company owes Rs 44,478 crore to its lenders. As per Bhushan Steel's website, it is the third largest secondary steel producer in the country with annual capacity of 5.6 million tonne.
 

Tata Steel, one of the bidders for Bhushan Steel, has said it has been identified as the highest bidder for acquiring controlling stake in the debt-ridden firm undergoing insolvency proceedings.

Besides Tata Steel, JSW Living Pvt Ltd (a joint venture between JSW and Piramal Enterprises) and a consortium of the Bhushan Steel's own employees had also submitted bids to take over assets of the bankrupt firm on February 3, 2018.

The agency also said that meaningful resolutions of NPAs would significantly improve banks' asset quality metrics. Beyond asset quality, the effect on profitability and capital will depend on the haircuts that lenders take in the resolution process.

"In this context, the Bhushan Steel transaction is an important milestone, because it is the first and largest of the 12 large non-performing asset in the NCLT resolution process. If the other steel assets are resolved with similar haircuts, many banks can expect a positive effect on profitability and capital," it added.