As India's domestic steelmakers deal with costly loans and low profitability from a production glut in the world markets, private equity (PE) players and other investors are seeing investment opportunity in the troubled sector.
Sources told Bloomberg that as lenders consider to convert their debt into equity, investors believe the time is ripe for equity acquisition of these hard-pressed steel makers. Also, with India's economy poised to grow at 7.75 percent this fiscal, investors feel their bets are well timed.
With nearly one third of $46 billion bank loans turning sour in fiscal 2016, the country's steel industry is the worst of all the 16 sectors monitored by the Reserve Bank of India for bad loans. Its stressed asset ratio is at a 16-year high of 11.5 per cent of the outstanding lending as of March end.
Though no deal size or structure has been explicitly stated, the news outlet reported that PE firms namely the KKR & Co and Aion Capital Partners were scouting for equity investments. Aion, the source confirmed, was on the look out for stakes in India's ferrous and non ferrous metal companies.
Their target so far are billionaire Lakshmi Mittal-backed Uttam Galva Steels and Bhushan Steel, while Aion is also eyeing a stake in Electrosteel Steels. Bloomberg data revealed that the three firms alone had a combined debt of nearly $ 8.3 billion.
Local units of global credit rating agencies have cut both Uttam Galva Steels and Bhushan steels' ratings to lowest. While Uttam is slated to be in dafult or to go default soon, Bhushan Steel since October 2015 has deteriorated in its financial risk profile and delayed its debt servicing.
The report highlighted that a few asset management companies and investors were also seeking joint ventures with lender banks to invest in the country's stressed assets. It noted, Brookfield Asset Management Inc. was in talks with India's biggest lender, State Bank of India on such investments.