August 31, 2018 / 8:25 AM / 24 days ago

Exclusive - India state steel firm SAIL declines dividend to government, says has no cash: internal document

NEW DELHI (Reuters) - State-owned Steel Authority of India Ltd (SAIL) (SAIL.NS) has declined a government call for a dividend for the last financial year, saying it did not have “any cash and bank balance” and that its debt-to-income ratio was much higher than agreed with some lenders, showed an internal document reviewed by Reuters.

A motorcyclist rides past an advertisement of Steel Authority of India Ltd. (SAIL) at a street in New Delhi, India, August 5, 2016. REUTERS/Adnan Abidi

Shares of the company, which has a market value of around $4.7 billion, were down more than 2 percent after the news in a wider market that was largely flat .NSEI.

SAIL’s refusal could make it harder for the government to meet its budgeted target of raising 1.06 trillion rupees (11.49 billion pounds) from the dividends and profit of state-owned companies this fiscal year ending March. Last fiscal year, the government received 1.23 billion rupees, 13 percent below the then target.

India’s second-biggest steel firm by current production said it had been due to pay out 21.71 billion rupees including tax to the government based on its “net-worth” last fiscal year.

“SAIL does not have any cash and bank balance and would need to borrow from the market for payment of dividend,” SAIL said in an explanation sent to the government expressing its inability to pay the dividend.

“It is getting increasingly difficult to borrow further from the market in the current market conditions, especially for the steel sector, as the financial institutions and banks are reluctant to take further exposure on steel industry.”

A SAIL spokesman told Reuters that the firm posted a loss in the 2017/18 fiscal year “so there is no chance of a dividend”.

The Ministry of Finance did not respond to a request for comment.

The document also showed SAIL’s net debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) ratio was 8.5, against the 1.5 to 3.75 “the company in financial covenants agreed to with some of the foreign lenders”.

The firm has 32.2 billion rupees debt due for repayment this fiscal year, which will have to be “met from borrowed funds”.

“In the last three quarters, the company has been in profit and production is also ramping up although the loans do exist. But this year, the company will end up showing net profit in toto,” the spokesman said.

Minister of Steel Chaudhary Birender Singh said he hoped SAIL would be able to improve its performance in the coming months.

“If we see SAIL increasing its pace of production, the turnaround may happen within six months to one year,” Singh told Reuters. “The company is right now on course-correction mode.”

SAIL’s stock, which has fallen more than 13 percent this year, was trading at 79.60 rupees on Friday afternoon.

Reporting by Neha Dasgupta; Additional reporting by Manoj Kumar; Editing by Krishna N. Das and Christopher Cushing

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