Financial restructuring of Hindustan Steel Works Construction Limited and its takeover by National Buildings Construction Corporation Limited
No: --- Dated: May, 25 2016
The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi has given its approval for financial restructuring of Hindustan Steel Works Construction Limited (HSCL). It has also approved its takeover by National Buildings Construction Corporation Limited (NBCC), a Central Public Sector Enterprise under the Ministry of Urban Development.
The existing paid up equity capital of the HSCL is Rs.117.1 crore. Under the proposal, the Government of India Non Plan Loan and Plan Loan along with accumulated interest thereon and outstanding guarantee fee worth Rs.1502.2 crore will be converted into equity and equity capital of the company will be raised to that extent. The paid up equity capital of the company will become 1619.3 crore. Against this, the accumulated losses of Rs.1585 crore, as on 31.3.2015, will set off. After writing off of the accumulated losses, the equity and paid up capital of HSCL will become Rs. 34.3 crore. NBCC will infuse funds of Rs. 35.7 crore as equity into HSCL. HSCL will become subsidiary of NBCC with NBCC holding 51% equity holding. The shareholding of Government of India in HSCL will be reduced to 49%. The equity and paid up capital of HSCL will become Rs.70 crore.
NBCC and HSCL are Government of India enterprises with similar lines of business activities. The decision will benefit in economies of scale for NBCC and would assist in better manpower utilization. NBCC and HSCL will benefit from each other’s resources and expertise. HSCL will be able to fulfill its commitments of execution of projects and the orders.
Government of India will provide one-time support of Rs.200 crore for settling term loans availed from commercial banks. It will also bear the contingent liability of Rs.110 crore (approximately) as decided by the Supreme Court in compensation for VRS liabilities. In addition, Government of India will also pay the outstanding interest on the bank loans for the financial year 2015-16 amounting to Rs. 44 crore approximately (till 31.03.2016) and the amount of interest up to the date of takeover of HSCL by NBCC.
Background:
HSCL was established in the year 1964 for construction of modern integrated steel plants. Over the years the company has diversified into other civil infrastructure construction projects. HSCL started incurring losses since 1978-79 mainly due to absorption of large workforce of several PSUs and private companies increasing the workforce from 4,100 in 1970 to 26,537 in 1979. The revival package for HSCL approved by Government of India in 1999 and further attempts for financial restructuring the company were not successful.
The Committee of Secretaries recommended in July, 2015 that Ministry of Steel may explore the possibility of merger/takeover of HSCL by another CPSE in a related sector. A Group of Secretaries (GoS) was constituted to prepare a Paper on way forward for HSCL. On the recommendations of the GoS, and the subsequent consensus, a Cabinet Note was prepared for financial restructuring of HSCL and its takeover by NBCC.