London: India’s largest public sector steel maker SAIL, which is implementing $12 billion expansion programme, has warned that it may face cost overruns as credit squeeze and higher global interest rates were impacting investment projects.
“We are looking at different scenarios but I have a lurking suspicion that our debt costs may rise,” the Financial Times reported on 9 October quoting state-run Steel Authority of India Ltd (SAIL) Chairman S K Roongta as saying in Berlin.
However, Roongta declined to speculate on how much higher his borrowing costs would be, it said and pointed out that higher interest interest rates could raise the company’s borrowing costs by up to $100 million every year.
It quoted the SAIL Chairman as saying that half the investment costs will come from internal cash flows with the rest from debts, which now stood at $1 billion. “The total ramifications of what we are facing (in terms of debt servicing costs) have yet to be seen,” he was quoted by the business daily as saying.
“This means that SAIL’s debt is likely to rise to $6 billion to $7 billion during the investment period,” the Financial Times reported. SAIL until recently faced an estimated $600 million a year bill for servicing the debt portion of the total money.
However, due to SAIL’s good record of worthiness the company would have little difficulty in raising the money it needs even though on terms which were still unclear, it quoted Roongta as saying.