The Steel Authority of India Ltd, crippled by heavy losses and hammered by a weak global steel market, is seriously considering divesting its stakes in two of its special steel plants, Salem Steel Plant in Tamil Nadu and Alloy Steel Plant at Durgapur.

The public sector company has engaged J.M. Morgan Stanley to examine the divestment proposal for Salem Steel. Earlier Sail had commissioned McKinsey & Company to examine the prospects for the Durgapur plant. McKinsey recommended that Sail must either sell off the plant or close it down.

Sail''s special steel group performed poorly. The special steel units together accounted for 27.5 per cent of the company''s losses in 1998-99 even as they contributed just about 6 per cent of its turnover. Salem Steel, Alloy Steel and the Visveswaraya Iorn & Steel plants together recorded a loss of Rs 432 crore in 1998-99.

Of the special steel plants, Salem has the least obsolete plant, including two cold rolling stainless steel mills with a capacity of 70,000 tonnes per annum, a new steckel mill with a hot-rolling capacity of 1,80,000 tonnes and a ''blanking'' line. A revamp of the plant will cost Rs 200 to 500 crore.

Sail may find some ready takers for these plants. The London-based L N Mittal group, one of the largest steel producers in the world, is reported to be considering bidding for either the Salem or the Durgapur plant. Stockholm-based Avesta Sheffield (a subsidairy of Britsh Steel), Nippon Indian Metal Company (a subsidiary of Nippon Steel of Japan), and Gamma Synergy of Canada are also in the fray.

The L N Mittal group controls several steel plants, including Ispat Karmet in Kazakhstan and PT Ispat Indo in Indonesia. Avesta Sheffield is a leading stainless steel supplier with a production capacity of 1 million tonnes a year.

Sail has recorded a loss of Rs 610 crore in the first quarter of 1999-2000. Losses are projected around Rs 2,500 crore for the full year. The company had made a loss of Rs 1,573 crore in 1998-99. These losses make SAIL a strong candidate for referral to the Board for Industrial and Financial Restructuring. The company ''s debt-equity ratio is 3.03:1.

The company has borrowings of Rs 20,000 crore, and its annual outgo on interest alone is around Rs 2,000 crore. It had proposed a restructuring plan to the government, which includes conversion of a Rs 6,000 crore loan from the Steel Development Fund into equity. However, the government has not acted on the proposal for the last nine months.

Sail has a workforce of 1,70,000. The McKinsey report had suggested that the company should get rid of the flab by at least 41 per cent. Around 24,000 employees are expected to retire from service by May 2000. The company was severely handicapped by the increase in the retirement age to 60. Had it not been for that, some 48,000 would have been off the rolls by May 2000.

Sail''s critical fund position has forced the company to defer payment of bonus and ex-gratia to its executive staff, while the non-executive staff has been paid the statutory 8.33 per cent bonus. Although a voluntary retirement scheme is on, Sail sources say the response has not been encouraging

To add to Sail''s problems, credit rating agency Crisil has downgraded the company to sub-investment grade. Crisil has downgraded the BBB (moderate safety) rating given to Sail''s Rs 2,730-crore bond issue to BB (inadequate safety), and the FA rating assigned to its fixed deposit scheme to FB (inadequate safety with relatively higher standing within the category).

Crisil says Sail''s position has been constrained by its continuing support to Iisco, its reduced net worth, gearing of 3.03, interest coverage of 0.77 and return on capital employed of 1.76 per cent as on March 1999.