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Valuation of Steel Plant

By August 30, 2022Case Studies2 min read
Valuation of Steel Plant

Background

We have been assigned to valuate a small integrated steel plant with installed capacity of about 0.25 million TPA manufacturing products like steel bars and special steels products used in automobile and special engineering applications.
It also has merchant power plant running with waste gases of Steel plant.
Plant was of 15 years old and admitted to CIRP under IBC. Plant has not been operating at the time of CIRP admission.

Challenges for Valuation

    • Plant was not operational for a long time and all the equipment are deteriorated
    • Half of the captive plant capacity was intended to feed the grid under merchant plant configuration, but no PPA was in place.
    • PPA for merchant capacity of the power plant was not in place, hence they cannot sell power to grid.
    • There is no iron ore linkage/ long term agreement for raw material.

The problems leading to impairment in value

  • Any bidder who takes over the company has to deal with statutory approvals which have expired, Raw material procurement, PPA for merchant power plant.
  • Longer refurbishment time to re-commission the plant.
  • Escalation of cost.

Approach

Considering that steel plant was extensively deteriorated, a valuation approach had to be adopted to arrive at valuations which could practically be used to fetch maximum value for the lenders.

Solution Offered

  • Valuation of this steel plant under the consideration of going concern on asset valuation basis.

This approach facilitated the lenders to take a decision to dispose this plant in the best possible manner to recover debts.

Also Read, A Flood-Damaged Hydro Project Became Insolvent Under IBC