Home >companies >Essar Steel to monetize assets, refinance Rs15,000 crore in loans

Mumbai: Essar Steel India Ltd plans to monetize assets worth 7,200 crore and refinance 15,000 crore in loans to strengthen the company’s balance sheet.

Essar Steel Holdings Ltd, the holding company of Essar Steel, has also infused 1,300 crore into the company, which has debt of over 30,000 crore.

Essar Steel, a part of the Essar Group, posted a net profit of 648 crore for the financial year ended 31 March against a loss of 1,597 crore in the previous year, owing to a better raw material mix and a one-time gain from sale of assets, said the management.

As an unlisted company, Essar Steel is not required to disclose its earnings to stock exchanges.

“We have drawn up a clear roadmap to strengthen the balance sheet through infusion of funds, ramping up the production and improve profitablity to ensure sustainable operations of the company," said Firdose Vandrevala, executive vice-chairman.

Vandrevala said Essar Steel had identified assets worth 12,050 crore to monetize. The company has already raised 4,850 crore by selling an oxygen plant for 850 crore and its Odisha slurry pipeline for 4,000 crore.

The remaining 7,200 crore could be raised by selling the company’s Vizag slurry pipeline and coke ovens, said the management.

The company has secured 3,825 crore in working capital from banks and raised $2.2 billion in pre-export finance—money borrowed against orders from foreign buyers—for early repayment of existing rupee debt, the management said.

“All these measures will result in interest rates dropping to 9% from current 12% while average tenure of our loans will fall to 12-13 years against average of seven years," Vandrevala said.

The company will also seek to refinance 15,000 crore of loans under the so-called 5/25 scheme this financial year. Under the scheme, commercial banks can extend long-term loans of 20-25 years to match the cash flow of existing infrastructure projects while refinancing them every five or seven years.

In 2002, Essar Steel restructured its debt under the corporate debt restructuring scheme like many other steel makers. It exited the scheme successfully after repaying 2,800 crore to creditors in 2006.

“The company was in the Corporate Debt Restructuring cell till 2006 as a fall in steel prices had impacted all steel companies back then. What has brought Essar Steel under stress this time is its capacity addition," said Nirmal Gangwal, founder and chief executive officer, Brescon Corporate Advisors Pvt. Ltd.

“A few years back when these capacities were planned, the expectation was there would be a huge steel demand. However, heavy imports from countries like China have impacted steel companies in India," he said.

Ruia accepted that Essar Steel faced its fair share of problems in the last two years due to delays in executing projects, but added that the company is back on track. He indicated that the parent group is willing to infuse further equity into Essar Steel if required.

Even so, a turnaround may not be easy to execute at a time when the steel sector is under stress due to weak domestic demand and rising imports.

“The entire steel industry is going through a rough patch. In such a scenario, to attempt a turnaround for any steel company is going to be a major challenge," said an analyst is a foreign brokerage firm who tracks the metals sector.

The analyst did not want to be named because he is not authorized to speak to the media.

The story has been modified to remove extraneous paragraphs.

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