Essar Steel has raised $1 billion (about Rs 5,900 crore) through the external commercial borrowing channel to repay its rupee-denominated debt. The borrowing was done at Libor (London Interbank Offered Rate) plus 4.5-5.5 per cent. The one-year Libor is at 0.67 per cent.
The company pays an interest of 12-12.5 per cent on its rupee loans. The ECB was subscribed by a large group of banks led by IDBI and ICICI Bank. Besides de-risking the balance-sheet, the fund raising will increase loan payback period to seven years from three years and reduce the interest outgo by Rs 450 crore per annum. The company has a debt of Rs 22,000 crore.
Ashutosh Agarwala, Chief Financial Officer, Essar Steel, said the company earns $800 million to $1 billion by way of exports, accounting for 25 per cent of its total revenue.
The fluctuation in the rupee value against the dollar will have little impact on the current borrowing as the company has natural hedge on its exposure, he said.
Weak demand
“Globally, the steel industry is going through a phase of weak demand resulting in lower realisations. It is imperative that the debt of the company is aligned to the earning currency, thereby reducing volatility in earnings,” he added.
As steel prices in India are benchmarked to international markets, there is a high degree of correlation between the company’s earnings and dollar movement.
As a result, even though the domestic sales revenues are realised in rupees, the pricing methodology is based on the landed cost of imported steel, which in turn is based on the dollar rate.
The company recently completed the expansion of its steel-manufacturing capacity to 10 million tonnes per annum. With tapering of demand in India, Essar Steel has been focusing on export markets through its value-added steel.
suresh.iyengar@thehindu.co.in