India: SAIL to Renegotiate High-Value Purchase Orders

With the prevailing coronavirus pandemic wreaking havoc on business activity and the market in a firm bearish grip, state-owned Steel Authority of India Limited (SAIL) is proactively seeking to tackle the problem of liquidity crunch to tide over these difficult times when the slide in offtake since the beginning of March 2020 has been drastic and collections have plummeted to a record low.

With an eye on conserving cash, the steel behemoth has proposed to renegotiate high-value purchase orders and contracts. A missive issued by the Finance Department of the CPSU - a copy of which is with SteelMint - urges the concerned departments to review all purchase orders and contracts, defer the delivery period wherever possible and foreclose non-essential orders.

"All high-value purchase orders are to be renegotiated... If sufficient rebates are not forthcoming such purchase orders and contracts may be considered for closure and fresh tender quickly floated to capture the benefit of reduced prices in the market," the letter issued by the Finance Department says.

With most BFs of the integrated steelmaker continuing operations, albeit on a reduced scale, and no opportunity for curtailing operational expenditure, the massive dip in sales since March is certainly a drain on the company's finances. Total borrowings have crossed INR 52,000 crore and are "likely to go up further" which has clearly led to an unsustainable situation with ratings downgrade, debt trap and stoppage of operations posing major threats.

Incidentally, total borrowings which were assessed at INR 51,300 crore in October 2019 had been brought down by INR 700 crore in December 2019 but have breached the INR 52,000 crore level now. Therefore, the proposal to review and renegotiate contracts is to offset an impending liquidity paralysis.