New Delhi, April 20 (IANS) Anil Agarwal-led Vedanta Ltd’s acquision of 90 per cent stake in the stressed asset Electrosteel Steels Ltd (ESL) through insolvency proceedings was “credit neutral”, according to a India Ratings and Research (Ind-Ra) report released on Friday.
According to the report, the acquisition will provide a modest improvement to acquirer business profile with a focus on value-added steel products. Vedanta has a 0.8 mtpa (million tonne per annum) pig iron capacity in Goa and the acquisition will add 1.5 mtpa steel capacity now and another one mtpa upon the completion of expansion programme.
“The acquisition will provide synergies in form of forward integration of ESL steel plant with Vedanta’s possible mining operations in Jharkhand,” it said.
The research note also said the acquisition would have marginal impact on Vedanta’s balance sheet leverage.
“FY19 net leverage is likely to increase to a range of 2.3x-2.5x. This will be due to a combination of events including the cash outflows relating to the ESL acquisition and stoppage of Goa iron ore mining and copper smelting operations,” it said.
The Kolkata bench of National Company Law Tribunal recently had approved the resolution plan of insolvent ESL.
According to the plan, a wholly-owned subsidiary of Vedanta, will subscribe for the share capital of Electrosteel for an aggregate amount of Rs 1,805 crore ($275.7 million) and provide additional funds aggregating of Rs 3,515 crore by way of debt,” the company had said in a statement.
Upon implementation of the resolution plan, the company will hold approximately 90 per cent of the paid up share capital of the steel maker. The remaining 10 per cent will be held by Electrosteel’s existing shareholders and the financial creditors who receive shares in exchange for the debt owed to them, it added.
The funds received by steel maker as debt and equity will be used to fully settle the debts owed to the existing financial creditors, by payment of Rs 5,320 crore, it said.