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Buy-Out Firms Set Sights on India Steelmakers

Buy-Out Firms Set Sights on India SteelmakersBuy-Out Firms Set Sights on India Steelmakers

KKR & Co and Aion Capital Partners, a private equity firm backed by Apollo Global Management, are among investors considering buying stakes in beleaguered Indian steelmakers, people with knowledge of the matter said.

KKR and Aion were weighing investments in companies including Uttam Galva Steels, backed by billionaire Lakshmi Mittal, and Bhushan Steel, the people said. Aion is also evaluating the potential purchase of a stake in Electrosteel Steels, according to one of the people, who asked not to be identified because the information is private. The three companies have about $8.3 billion of combined debt, Bloomberg data show.

Iron and steel companies in India had 3.12-trillion rupees ($46.5 billion) of total bank borrowings as of March 18, according to central bank data. Nearly a third of the outstanding bank loans to Indian steel firms had soured at the end of March, making it the worst among 16 sectors tracked by the Reserve Bank of India.

Indian steel makers are suffering from high interest burdens and low profitability as domestic mills seek to weather a glut of cheap steel on world markets. ArcelorMittal, the world’s biggest steel maker, told lenders to Uttam Galva Steels that it would not invest any fresh funds into the company, one of the people said. The global steel giant owns 29% of Uttam Galva Steels, according to data compiled by Bloomberg.

Some private equity firms were also weighing investments in Uttam Value Steels, a maker of steel pipes and tubes, and closely held Uttam Galva Metallics, which produced galvanized steel in the western Indian state of Maharashtra, one of the people said.

The investment funds are seeking to buy stakes in the steel makers at the same time as the companies’ lenders restructure their debt, according to the people. Lenders are considering converting a portion of the companies’ debt into equity.

The stressed asset ratio, which measures the level of soured debt and restructured loans in the country’s banking system, rose to a 16-year high of 11.5% of outstanding lending as of March 31, according to data compiled by the RBI.

Talks were at an early stage, and the private equity firms had not decided the size or structure of any deals, the people said.

Buy-out firms are flocking to India, lured by the prospect of buying assets at deep discounts in a nation that is forecast to expand as much as 7.75% in the financial year that started in April, even as growth slows in China.

Financialtribune.com