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Electrosteel acquisition by Vedanta is credit neutral: Ind-Ra
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SME Times News Bureau | 21 Apr, 2018
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.
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