Essar Steel raises $1 bn through ECBs, to help retire rupee debt

Essar Steel, a part of the Ruias-owned Essar Group, has raised $1 billion through external commercial borrowings (ECB) to part-retire its rupee-denominated debt, the company said today.

Essar SteelThe move will help Essar Steel to de-risk its balance sheet from fluctuating currency rates and save about Rs450 crore per annum in interest payments.

"As a result of dollarising its rupee debt, Essar Steel will save approximately Rs450 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 from New Delhi.

Essar Steel has a total of 14 million tonnes per annum (mtpa) installed steel-making capacity in India and overseas; and it generates a good part of revenue through exports.

The domestic price of steel is also largely determined by the landed cost of imported alloy.

The dollar debt, priced at a competitive LIBOR-linked rate, has an average maturity of seven years. Essar Steel reportedly has $4 billion debt on its book.

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," the release said, adding that large lenders like ICICI Bank and IDBI subscribed the ECBs.

"The 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 Essar Steel chief executive Ashutosh Agarwala. "The dollarisation of rupee debt would not only de-risk our balance sheet but also elongate maturity and reduce interest costs."