Slowdown-hit Ispat defaults on loan repayment to UTI

MUMBAI: Vinod Mittal-run Ispat Industries is learnt to have defaulted on its loan repayment to UTI as slowdown in the global commodities markets has hit the Mumbai-based company, in a repeat of the 1998-2002 period when the industry had hit its lowest ebb.

The company ��� India���s fourth-largest steelmaker ��� has also advanced temporary closure of its blast furnace by six months, which would reduce its total steel production in the current year by about 40%.

Ispat Industries was scheduled to make a payment of around Rs 100 crore to UTI by June 2008 as part of a Rs 550-crore loan settlement. Under the mutually agreed settlement in 2005, Ispat had promised to pay the entire
principal amount of Rs 344.75 crore and 81.21% of the simple interest of Rs 239.79 crore, or Rs 194.74 crore.

UTI had waived Rs 125 crore, which is the compound interest and penal charges on the debt. The settlement was expected to reduce interest outgo to the extent of Rs 50 crore annually. Ispat had made an upfront payment of Rs 55 crore, with the understanding that the remaining would be paid through 35 monthly installments.

Although the steel company had made periodic payments so far, the current bad steel market had delayed the June payment. ���We are talking to UTI and they understand the situation. We have asked them for some time,��� executive director (finance) Anil Surekha told ET, when contacted.

At the end of March 2008, Ispat had total loans of Rs 7,225 crore, including both secured and unsecured, compared with Rs 8,315.50 crore in the previous year.

Like most steel companies across the globe, Ispat Industries has been hit by the slowing demand for the metal, as a global credit crunch has forced user companies to cut down on consumption. The slowdown has led to a sharp drop in steel prices across the world, with the global plunge prompting Indian prices to fall. Indian hot rolled coil prices are down to Rs 27,000 per tonne, as against a peak of about Rs 35,000 earlier this year.

The fall in prices and the general recessionary trend is similar to the situation in the 1998-2002 period, when the steel industry witnessed prices below production costs, leading global mills to close down plants. This also had led many Indian steel companies to default on interest payments to financial institutions, prompting lenders to work out debt restructuring.

The shutting of Ispat���s blast furnace before time ��� it was scheduled to be temporarily closed for maintenance next year ��� is also due to the adverse market conditions. While the blast furnace would be shut for 40 days, the total production for the company this year would be about 2.5 million tonnes, as compared with 2.7 million tonnes last year. Ispat had targeted to make 3.1 million tonnes this year.

���The industry is passing through tough times where prices have crashed 40-50% in two months,��� says Khandwala Securities analyst Giriraj Daga, in a recent report. ���We feel the current low prices might force many high cost steel producers out of business, which could bring raw material producers to the negotiation table. We also believe strong consolidation among input producers may bring very marginal relief for the sector,��� he added.

NMDC, which supplies iron ore to Ispat, Essar Steel and partly to JSW Steel, had recently raised long-term contract prices, forcing steel companies to negotiate with the state-run mineral producer to reduce ore prices.