Hindustan Steelworks Construction Ltd to merge with NBCC
25 May 2016
The union cabinet today gave its approval for financial restructuring of Hindustan Steel Works Construction Limited (HSCL). It will now be taken over 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 HSCL is Rs117.1 crore. Under the proposal, a Government of India non-Plan loan and Plan loan along with accumulated interest thereon and outstanding guarantee fee worth Rs1,502.2 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 Rs1,619.3 crore.
Against this, the accumulated losses of Rs1,585 crore, as of 31 March 2015, will set off. After writing off of the accumulated losses, the equity and paid-up capital of HSCL will become Rs34.3 crore. NBCC will infuse funds of Rs35.7 crore as equity into HSCL, which will become a subsidiary of NBCC with NBCC holding 51 per cent equity holding.
The shareholding of Government of India in HSCL will be reduced to 49 per cent. The equity and paid up capital of HSCL will become Rs70 crore.
NBCC and HSCL are central government enterprises with similar lines of business activities. The decision will bring 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 also be able to fulfill its commitments of execution of projects and the orders.
Government of India will provide one-time support of Rs200 crore for settling term loans availed from commercial banks. It will also bear the contingent liability of Rs110 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 Rs44 crore approximately (as of 31 March 2016) and the amount of interest up to the date of takeover of HSCL by NBCC.
HSCL was established in 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 the government in 1999 and further attempts for financial restructuring the company were not successful.
A committee of secretaries had, in July 2015, recommended merger/takeover of HSCL by another CPSE in a related sector. A group of secretaries had further recommended financial restructuring of HSCL and its takeover by NBCC.