Essar Steel raises $1 bn via external commercial borrowing

Moneycontrol Bureau

In line with this strategy to de-risk its balance sheet, Essar Steel today announced raising USD one billion via external commercial borrowings (ECBs) at a competitive LIBOR linked pricing.        

Consequently, the average maturity of its debt or in other words the door to door maturity has nearly doubled. The dollar debt has an average maturity of seven years. The earnings, being dollar linked, would serve as a natural hedge to reduce the risks associated with currency fluctuations.     

As a result of the dollarizing its rupee debt, the company will also save around Rs 450 crore per annum toward interest payment.

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The company will also gain significantly in terms of additional liquidity and substantial savings in interest cost. As on date, substantial debt of the company is rupee denominated as against 30- 40 percent in peer steel companies in India. 

ECB was subscribed by large group of banks led by IDBI and ICICI Bank.  

Commenting on this development, Ashutosh Agarwala, chief financial officer, Essar Steel India said, “Steel industry globally 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. The dollarisation of rupee debt would not only de-risk our balance sheet, but also elongate  maturity and reduce interest costs.”    
 
Essar Steel India has successfully completed the expansion of steel manufacturing capacity from 4.6 metric tonnes per annum to 10 MTPA. It is the 4th largest single location flat steel producer and a highly cost competitive in the bottom quartile of the global steel producers on the global cost curve.

The company has been focusing on exports and is one of the biggest foreign exchange earners in India through export of steel products. Steel product prices in the international markets and domestic markets show a very high degree of correlation. As a result even though the domestic sales revenues are realized in Indian rupee, the pricing methodology of the same is based on the landed cost of imported steel, which in turn is based on a dollar rate.