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DEBT | 2 August 2013

Essar Steel Plans Fund Raise To Dollarize Debt

by Pranali Shah
Essar Steel Plans Fund Raise To Dollarize Debt
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Essar Steel is planning to raise about R12,000 Cr ($2 Bn) through pre-export finance in order to pre-pay its existing rupee debt, BL states. The move is to help de-risk the company’s balance sheet, as the revenues of Essar Steel are dollar denominated. This fund raise would provide a natural hedge for dollar debt.

The export advance funding would be done by foreign banks and Indian bank branches abroad. The company will be saving R1,300 Cr a year by prepaying some of the rupee loan. This exercise will extend the loan maturity period to 6.5 years from 3.5 years.

Of R24,000 Cr ($4 Bn), the company has foreign currency debt of R18,000 Cr ($3 Bn) and the rest is in rupee terms.

The expansion of its steelmaking facilities at Hazira was taken up when the rupee was trading at R40 to a US dollar.

In June, the company raised R6,000 Cr ($1 Bn) through the ECB route that resulted in an annual saving of R450 Cr. It had recently completed its expansion from 4.6 Mn mtpa of steel production to 10 mtpa. Off late, the company has been focusing on exports.

It was also observed that the company is the front-runner to clinch Stemcor India's assets for which at least a dozen domestic and overseas firms, including Tata Steel, Vale and JSW Steel are also in the fray. The asset is estimated at a valuation of $800 Mn.

Essar Steel reportedly has $4 Bn debt on its book. In the last fiscal, the RBI allowed the company to raise $430 Mn through ECB.

In the current year FY14, Essar Steel which has set up a 10Mn tonnes facility has decided to ramp up capacity from the present 4.5Mn tonnes to 6Mn tones.

Stemcor had its first joint venture in India with Essar Steel and jointly, these two firms set up a 3 mtpa pellet plant at Vizag in Gujarat back in 2001 though Stemcor, later in 2003, sold its stake to Essar Steel.

In this sector, JSW Steel Limited was planning to acquire stake in Sandur Manganese & Iron Ore.

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