01-Aug-2013
KOLKATA: Essar Steel is planning to raise $2 billion through pre-export finance for pre-payment of existing rupee debt. The company said its move to raise funds against confirmed export orders forms part of a strategy to replace rupee loans by dollar denominated ones. The latest fund raising plan, for which the company has already received necessary approvals, is a part of Essar Steel's strategy to dollarize the balance sheet.
Last month, Essar Steel had raised $1bn through external commercial borrowing (ECB) that resulted in an annual saving of Rs 450 crore. With the latest round of re-financing, the company has managed to dollarise $3 billion of debt. "Essar Steel's exports add up to over $ 1 billion. Given the rupee devaluation it is the right time for us to raise funds against our exports orders," Ashutosh Agarwala, CFO and director (finance) Essar Steel India said.
The move to raise $2 billion will help de-risk the company's balance sheet as Essar Steel's revenue is dollar -linked and hence provides a natural hedge against dollar debt, he added. Agarwala said the company's efforts are focused on bringing down the average interest cost and extend the average tenure of debt. Essar Steel has been focusing on exports and is one of the biggest foreign exchange earners in India through export of steel products. Since steel prices are determined in terms of landed cost of imports it shows a high degree of corealtion in international and domestic markets.
Essar Steel, which has a total debt burden of around $4 billion, is in a unique position to benefit from the changes in the rupee-dollar exchange rate. The expansion of its steelmaking facilities at Hazira was taken up when the rupee was trading at Rs 40 to a US dollar. With the exchange rate breaching the Rs 60 to a US dollar mark, the company will save significantly by dollarising the balance sheet at the current exchange rate. This includes reduction of average interest cost from rupee linked rate to average interest rate of 8.5%, which will result in a large interest saving of upto Rs1500 crores annually.
The company also hopes to extent the average tenure of its debt from 3.5 to 6.5 years. In the current year FY14, Essar Steel which has set up a 10 million tonne facility has decided to ramp up capacity from the present 4.5 million tonne to 6 million tonne .
Source:-economictimes.indiatimes.com
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