Summary
Group firm of a Steel Sector company wanted to double the capacity in view of strong steel products demand. However, firm was constrained by negative net worth and past losses.
Vora Corporate Finance obtained an investment grade rating for the firm from the Rating Agency and raised Debt of Rs.300 million for the firm at favourable terms.
The Full Story
The Situation
ABC* is a steel billets manufacturing firm that was established with a significant steel billet manufacturing capacity in 2011. Firm is part of a large steel conglomerate.
ABC carried on operations from 2012 to 2015. However the firm incurred significant losses in FY 2014 and FY 2015 due to slowdown in steel sector. This losses wiped out the entire net worth of business and left the financials in a precarious condition. Firm in 2015 decided to stop manufacturing operations and rent the premises to its parent company.
In 2018 ABC’s Management decided to end the lease contract with its parent company and resume operations. Looking at the condition of Steel Sector it decided to double the capacity for viability of operation. ABC needed funds for incurring CAPEX and enhance installed capacity.
Following critical factors were causing problems in obtaining funds:
- No operations in books in last 2 years, only lease income
- Negative Net Worth as per last balance sheet of firm
- Loss in the last few years when firm was operational.
ABC gave mandate to Vora Corporate Finance to raise long term Debt for its capacity expansion
Our Approach
Step I: Organizational Review
- Understand the business of the firm and study financials
- To understand the strength of promoters and group
- Analyse the Steel Industry from firm’s point of view
Step II: Structure Transaction
- Identify risk areas and manage them suitably
- Structure financial transaction
- Comply with requirements of bank with respect to financial ratios
Actions taken
- The capital structure of firm was adjusted to lower risk from bank’s perspective. New capital structure was also more adapt to address variations associated with Steel business.
- Represented the case to Credit Rating Agency
- Negotiated with the bank with regard to terms of the sanctions.
The Results
- We managed investment grade rating for ABC from Credit Rating Agency.
- ABC could avail sanction of Rs.300 Million Term Loan for CAPEX for 8 years with 6-month moratorium
- Corporate Guarantee requirement was waived.
- Interest Rate negotiated was almost 2% lower than that of other companies of group.
- Funds were disbursed as per the project schedule and project was finished on time. ABC managed turnover of Rs. 6 Billion in first year of operation with PAT of around Rs. 180 Million.
* We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real.