Bhushan Steel Limited : Leverage a Double Edge Sword

Abstract

The Non Performing Assets (NPAs) of Banks is a matter of great concern. The gross bad debt of the Indian banking system was Rs. 7.11 trillion as on March 2016. The Bhushan Steel Ltd was in the first list of 12 Loan defaulters as on 31st March 2016 and had an outstanding loan of Rs. 44478 crore. SBI filed a claim against Bhushan Steel Limited under Insolvency and bankruptcy Code, 2016 to recover Rs. 4295 crore and $490 million foreign currency loan. So to know how the Bhushan Steel Ltd gone into bankruptcy proceedings the objective of the study is to analyzing the capital Structure, debt Structure and the financial position of the Bhushan Steel Ltd. Data for the study is taken from capital line data base from period 1992 to 2017 and from the article/research published in the websites. The objectives of the study have been achieved with the ratio analysis. The study finds that the three fourths of the Odisha plant of Rs. 19400 crore was funded through debt to increased steel production. The problem began to start during 2010-11 as its debt repayment outstanding become Rs. 1118 crore. The cash from operating activities was only Rs. 994 crore and the company could not be able to pay its debt obligations. This position become worst during 2013-14 as it repaid
debt obligation of Rs. 3384 crores. Beside debt repayment the interest burden on the company reached up to Rs. 1663 crore with earning of Rs. 59 crore. The company could not come out from the debt trap. The profit and cash flow from operations was not enough to repay the loan with interest back to the loan providers. During this course of action the offering of bribe to the CMD of syndicate bank put the company in the back foot. In the case of Bhushan Steel Ltd there was absence of good governance that caused the company in to the insolvency process.