New stressed assets in the steel which are likely to be admitted for insolvency in the near future may result in higher haircut compared to the previously admitted companies, a Crisil report said on Thursday.
The report attributed its forecast of higher haircut to the fact that the stressed assets which may come up for insolvency are smaller in size and valuation.
"With an outstanding liability of Rs 62,000 crore as on March 2019, the top 17 stressed assets in the steel sector today are expected to seek or are seeking resolution through the IBC (Insolvency and Bankruptcy Code). This would include five steel assets referred by the Reserve Bank of India as part of NCLT-II round earlier," the report said.
"Unlike the first wave of debt clean-up the upcoming resolution cases shall largely be smaller assets concentrated in the long integrated, sponge iron, and flat-rerolling space," it said.
Out of the Rs 62,000 crore outstanding liability, 42 per cent reside with six long integrated players, 38 per cent with 6 sponge iron or pig iron players, 18 per cent with three flat re-rollers, and the balance with alloy steel and other players.
Considering the benchmarks of similar assets that have been resolved over the past three years, the recovery rates are expected to be lower, Crisil said.
It further observed that as acquired capacities change hands and large groups take over their reins, there would be higher capital expenditure.
"Capacities of five steel assets that are under the NCLT-I process now can (also because of land availability), nearly double from the current 22 million tonne (MT) to 41 MT. Further, large players such as Tata Steel and JSW are also on an expansion spree. JSW is increasing capacity by 11.7 MT and Tata by 6 MT by fiscal 2024," it said.
Overall, the steel sector is set to see 28-30 MT capacity addition, apart from ramp-up of under-utilised capacities (resolved NCLT-I cases). All that would keep utilisation levels at 80-82 per cent -- the same as now -- by fiscal 2024.
"These developments would, in turn, curb aggressive bidding during the next round of stressed assets resolution," it said.
In the first list of companies recommended by the Reserve Bank of India for resolution, there were 12 large companies, inluding large steel companies, Bhushan Steel and Essar Steel.
Subsequently, the apex bank also asked the banks initiate insolveny proceedings against another list of around 20 companies.
The 12 large non-performing assets (NPAs or bad loans) accounts directed by the RBI for resolution had total outstandings of Rs 3.45 lakh crore against their liquidation value of Rs 73,220.23 crore, while haircuts taken by creditors in case of the resolved accounts so far have been as high as 90 per cent, according to the Insolvency and Bankruptcy Board of India.