Hoping to bring down its interest costs, Seshagiri Rao, the joint managing director and group chief financial officer, JSW Steel tells CNBC-TV18 that the company will take the external commercial borrowings (ECB) route with the conversion option to raise USD 275 million.
Have you read: JSW Steel to raise $275m via ECB route, stock down 2%
Below is an edited transcript. Watch the accompanying video for more.
Q: What kind of instrument are you leaning towards? How much do you want to raise and by how soon?
A: The FCCBs which we had raised in 2007, it is due for payment in June 2012. We had earlier raised USD 275 million. So we are looking for refinancing of these FCCBs. We have tied up by way of ECBs with a convertible option. It is a new instrument. Generally ECBs are raised without the conversion option or conversion option is only in the case of a default. But taking into account the dollar liquidity in the international markets and also the pricing, we are raising this amount by way of a new instrument - ECB with conversion option. So that is close to USD 275 million, USD 200 plus USD 75 million as a green shoe option.
Q: At this point, what kind of rates does this ECB come with? Does it impact your interest costs? If you do choose to convert what kind of dilution could it lead to?
A: The earlier FCCBs we had raised at YTM of 7.25% per annum whereas the ECB with conversion option we are planning to raise 4% over LIBOR. So even if I do the five-year swap, the overall cost works out to around 5.1-5.2%. So relative to 7.25% it is cheaper, the raising of this money and the conversion price 10% over the floor price is working out to Rs 892. So overall, cost wise it is cheaper. If the conversion happens, the dilution will be close to around 6.55%.
Q: There has been some uncertainty from the Supreme Court with regards to what exactly may happen on the iron ore ban. Are you expecting to hear a final word on Friday? What is the company