NCLT resolution to settle over Rs 1.6 trillion steel sector debt

Companies with around 22 million tonne (MT) of crude steel capacity have been referred to the National Company Law Tribunal (NCLT) in the first round of the stressed assets resolution process by the Reserve Bank of India (RBI).

Rating agency Crisil in its report said the resolution of these cases will alter India's steel sector landscape as nearly over half of its outstanding debt of Rs 3.26 lakh crore will stand resolved and about a fifth of India's crude steel capacity held by these companies will move to stronger hands, resulting in better working capital and liquidity management.

"This, in turn, will lead to improving utilisation levels," it said, adding, "The flat steel segment would also consolidate further and be controlled by fewer players - both domestic and global."

The country's steel sector is dominated by six players at present, accounting for 85 per cent of the capacity, with the rest being distributed between smaller players and re-rollers.

Of the six, three are currently part of the first round of resolution process, according to the report, and are being eyed by large domestic and international steel makers for expansion or entry strategies.

According to Crisil, based on various acquisition scenarios, the flat steel market in India is expected to consolidate further to three or four players.

"Further, with few flat re-rollers being referred to NCLT II (second round), even these assets can be acquired by large players thereby strengthening their position," it said.

For acquirers of these assets, apart from attractive product portfolios and locational advantages, it also offer easy scalability, according to Crisil.

"The 22 MT of capacities under resolution have brownfield expansion potential of another 20-21 MT - based on their environment clearance and regulatory filings," said Prasad Koparkar, senior director, Crisil Research.

The NCLT I and II resolutions is also expected to alter flat steel landscape and improving pricing power, the report said.

However, Crisil stressed that if the consequent rise in prices hurts consumers, there is a risk of government intervention.