AgenciesIt is heartening that India’s bankruptcy resolution process is putting an end to bad loans one by one. The completion of Vedanta’s acquisition of bankrupt Electrosteel marks the second biggest successful recovery to date of a stressed steel asset after Tata Steel’s acquisition of Bhushan Steel.
Electrosteel is a good buy for Vedanta. It is paying Rs 5,320 crore for the company, which owes lenders around Rs 13,175 crore. On the face of it, a 60% haircut is pretty sharp. But the fact remains that it was the best price offered for the bankrupt company. Accepting the best price on offer is perfectly right. The highest bidder should be allowed to acquire the asset to soften the blow (read haircut) that banks have to take.
Vedanta will hold a 90% stake in the company, and the balance 10% will go to existing shareholders and financial creditors who get shares in exchange of the debt owed to them. The company’s experience in mining and minerals will stand in good stead as it forays into steel. This adds one more player to the sector with backward integration to minerals as Vedanta already has an iron ore plant in Jharkhand and mines in Goa. The vertical integration of steel manufacturing capabilities is bound to generate significant efficiencies.
Acquisitions such as these indeed have the potential to transform and revolutionise India’s steel industry.
Electrosteel is a good buy for Vedanta. It is paying Rs 5,320 crore for the company, which owes lenders around Rs 13,175 crore. On the face of it, a 60% haircut is pretty sharp. But the fact remains that it was the best price offered for the bankrupt company. Accepting the best price on offer is perfectly right. The highest bidder should be allowed to acquire the asset to soften the blow (read haircut) that banks have to take.
Vedanta will hold a 90% stake in the company, and the balance 10% will go to existing shareholders and financial creditors who get shares in exchange of the debt owed to them. The company’s experience in mining and minerals will stand in good stead as it forays into steel. This adds one more player to the sector with backward integration to minerals as Vedanta already has an iron ore plant in Jharkhand and mines in Goa. The vertical integration of steel manufacturing capabilities is bound to generate significant efficiencies.
Acquisitions such as these indeed have the potential to transform and revolutionise India’s steel industry.
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