Ways2Capital Reviews : Vedanta To Restructure Electrosteel Steels, To Make Delisting Offer At 82% Discount To Market Price

As part of the restructuring of Electrosteel Steels Ltd (ESL), Vedanta is restructuring its capital structure. The new promoter, Vedanta, has specified that they intend to delist ESL as part of the resolution plan.

The changes to the capital structure is as follows:

1) Vedanta Star, the new promoter entity, would infuse Rs5,320cr into ESL. Of this infusion, Rs3,515cr would be in the form of an intercorporate loan and Rs1,805cr would be equity.

2) The new capital would be used to pay down the debts of the lenders. This represents a haircut of ~48% for lenders.

As part of the equity restructuring, the company intends to implement the following steps:

1) Issue 739.9 crore shares to lenders as part of conversion of portion of debt to equity. This would increase the outstanding shares to 980 crore shares.

2) The existing capital would be reduced as face value would be reduced from Rs10 to Rs0.2 per share. Then, the shares would be reconsolidated in the ratio of 50 shares of face value Rs0.2 to 1 share of face value Rs10. As a result of this process, the existing shareholders would see their equity reduce by 98%. At the end of this restructuring the number of shares with old shareholders and lenders would stand at 4.8 crore and 14.8 crore respectively (face value of Rs10).

3) The company would issue 176.55 crore shares to Vedanta Star.

New shareholding pattern would be:
Promoters - 90%
Lenders equity - 7.5%
Old shareholders - 2.5%

The delisting offer for the company would be at Rs0.19 per share based on pre-capital reduction price. This is an 82.4% reduction from yesterday's market price (Rs1.08).
Vedanta is a diversified conglomerate with a wide commodity mix covering iron ore, zinc, copper, aluminium, coal, power, oil & gas and others. The company also operates power generation assets in India for both captive consumption as well as commercial generation. The management has given a capex target of $1.5bn for the company in FY19. Vedanta has recently entered the steel business by acquiring Electrosteel Steels for Rs5,320cr. The Tamil Nadu government has ordered the closure of the copper plant after protests over the plant's alleged pollution violations turned violent.

Vedanta would see a revenue CAGR of 13% over FY18-20E aided by (1) strong volume growth from the company’s commodity portfolio, and (2) firm global commodity prices. The company would also see its EBITDA margins expand by ~315bps over FY18-20E owing to higher production volumes and firm pricing. We expect PAT CAGR of 32.8% over FY18-20E respectively with an EBITDA margin of 30.5% in FY20E. The stock is currently trading at 5.2x FY20E EPS.
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About Bhoomi Desai