Bhushan Steel: a creditworthy company turned insolvent

Hemant Manuj (Department of Finance, S P Jain Institute of Management and Research, Mumbai, India)

Emerald Emerging Markets Case Studies

ISSN: 2045-0621

Publication date: 23 May 2019

Abstract

Learning outcomes

The purpose of this paper is to illustrate how a well-performing company can turn into a loss-making company on account of adverse industry cycle and poor management of risks in the business. The importance of factors like optimal level of leveraging, the ability of the management to deal with external and internal risks, and importance of corporate governance in the process of credit appraisal is understood from this case.

Case overview/synopsis

The case relates to the credit appraisal by the banks of a prominent steel company in India. The company, Bhushan Steel Limited, was doing very well. The banks lent aggressively to the company, based on their credit appraisal. However, the company soon turned insolvent on account of poor assessment of risks and deteriorating external factors. While this case may be analysed and studied through the eyes of both the Management and the lenders, the focus is currently on the latter. In a real-world scenario, the challenge for the lender is to sieve through the financial as well as non-financial data and make a valid conclusion on the level of credit worthiness of the borrowing company. This includes the topics of operational efficiency and synergies, commodity price cycles, external credit ratings, operating and financial leverage, regulatory risks and corporate governance.

Complexity academic level

Post graduate business management programmes – Finance specialisation.

Supplementary materials

Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Subject code

CSS 1: Accounting and Finance

Keywords

Citation

Manuj, H. (2019), "Bhushan Steel: a creditworthy company turned insolvent", Emerald Emerging Markets Case Studies, Vol. 9 No. 1. https://doi.org/10.1108/EEMCS-12-2017-0263

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Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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