CRISIL Report: Resolution of Indian Stressed Steel Assets Will Alter the Sector
Even as news came in late last week that some of India’s biggest steelmakers were set to expand production after reporting solid quarterly earnings amid strong steel prices, well-known research agency CRISIL has said in a report that resolution of stressed steel assets – those that are bankrupt – will “alter” the Indian steel sector irrevocably.
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Steel companies with about 22 million tons (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 India’s apex bank, the Reserve Bank of India (RBI).
The CRISIL research report said the resolution of these cases would alter India’s steel sector landscape in three ways:
- Over half of steel sector’s outstanding debt would stand resolved
- 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 (which, in turn, would lead to improving utilization levels)
- The flat steel segment would consolidate further and be controlled by fewer players – both domestic and global
“For acquirers of these assets, apart from attractive product portfolios & locational advantages, these assets also offer easy scalability,” said Prasad Koparkar, senior director of CRISIL Research. “The 22 MT of capacities under resolution have brownfield expansion potential of another 20-21 MT – based on their environment clearance and regulatory filings.”
India’s flat steel market is dominated by six players that account for 85% of the capacity, with the rest being distributed between smaller players and re-rollers. Of the six, three are currently part of the NCLT I resolution process.
Many, as reported by MetalMiner earlier, were being eyed by large domestic and international steelmakers for expansion or entry strategies.
The CRISIL report further claimed that based on various acquisition scenarios, the flat steel market in India was expected to consolidate further from the current scenario — of 85% being controlled by six players — to three or four players.
Already, India’s biggest steelmakers, such as JSW Steel Ltd., posted record net income last Wednesday and outlined a $6 billion plan to raise output. Tata Steel Ltd., which aims to double domestic capacity, swung to profit, helped by a one-time gain. Both are ramping up to meet an anticipated surge in domestic consumption, with the government set to spend trillions of dollars on expanding infrastructure.
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The Bloomberg report said JSW has forecast Indian steel consumption to rise by about 7.5% in the 2019 financial year.
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