Essar Steel raises USD 1 bn overseas to lower rupee debt

Essar Steel today said it has raised USD one billion through ECB to part-retire its rupee-denominated debt, a move that will help the Ruias-owned firm to de-risk balance sheet from fluctuating currency rates and save about Rs 450 crore per annum on interest outgo.

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"As a result of the dollarising its rupee debt, Essar Steel will also save approximately Rs 450 crore per annum in interest. The company will also gain significantly in terms of additional liquidity and substantial savings in interest cost," the steel maker said in a statement.

The dollar debt, priced at a competitive LIBOR-linked rate, has an average maturity of seven years. A substantial part of Essar Steel's debt is rupee denominated as against the average 30-40 per cent of the domestic peers.

"Consequently, average maturity of debt of the company has also nearly doubled. The earnings, being dollar linked, would serve as a natural hedge to reduce the risks associated with currency fluctuations," it said, adding large lenders like ICICI Bank and IDBI subscribed the External Commercial Borrowings (ECB).

Essar Steel, which has a total of 14 million tonnes per annum (mtpa) installed steel-making capacity in India and overseas, generates a good part of revenue through exports. The domestic price of the alloy is also largely determined by the landed cost of imported alloy. Essar Steel reportedly has USD four billion debt on its book.

"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," said company CEO Ashutosh Agarwala.

"The dollarisation of rupee debt would not only de-risk our balance sheet but also elongate maturity and reduce interest costs," he added.