ESL After NCLT Resolution
Many big analyst in the market were so much bullish about the story of steel companies which were debt ridden to make fortunes for shareholders after government setup a fast NCLT courts to give resolution plan to sell the bad asset of these companies to bail banks(lenders) out of trouble due to mounting NPAs from Steel sector. Everyone in the market were giving big targets for companies like Bhusan Steel, Monnet Ispat, Electrosteel Steels which were under NCLT resolution. However, the first result of NCLT resolution for Electrosteel Steels was a shocker for the shareholders. The lenders have taken a big chunk and shareholders got a peanut of their investment. Before the resolution plan ESL total outstanding shares were roughly around 280 Cr.
Below is the detail of the resolution plan of ESL.
- Vedanta Star, the group entity of Vedanta, would infuse Rs5,320 Cr ,into ESL. Of this Rs. 5320 Cr Rs3,515cr would be in the form of an loan and Rs1,805cr in the form of equity.
- The Capital Restructuring of ESL as per Resolution plan.
- First, the company will issue roughly around Rs.740 Cr shares at FV=Rs.10 to lenders and convert the debt into equity.
- Now, after this infusion ESL will have total outstanding shares of roughly around 980 Cr Shares( 240 old + 740 new) at FV=Rs.10.
- Then existing capital would be reduced from FV=Rs.10 to FV=Rs.20, and shares would be consolidated in the ratio 50 shares of Rs.20 to 1 share of Rs. 10( To understand this let us do a quick mathematical calculation: I have already mentioned that total outstanding shares of ESL were roughly around 980 Shares at FV=Rs.10, after capital reduction this will reduce to 980 Cr shares at FV=Rs.20. Then 980Cr/50=19.6 Cr Shares will be outstanding for ESL at FV=10 after consolidated.
- As of now we have understood that after applying the formula of NCLT the previous 980 Cr Shares of ESL at FV=Rs.10 have reduced to 19.6 Cr shares at FV=Rs. 10.
- Now Suppose , a retail investor who has bought 7000 Shares of ESL at FV=10 now will have only 7000/50=140 Shares at FV= Rs.10 in his demat account after this drama.
- The ESL would be delisted and exit route would be given to shareholders by offering Rs.19 Paise per share before capital reduction. It means the retail investor in the above example will get 7000*.19= Rs.1330.