Ruia family-controlled Essar Steel Ltd has raised $1 billion (Rs 5,990 crore) through external commercial borrowing (ECB) to de-risk its balance sheet at a competitive Libor-linked pricing, the company said in a statement. The ECB was subscribed by several banks, led by IDBI and ICICI Bank.
Consequently, the average maturity of its debt has nearly doubled. The dollar debt has an average maturity of seven years. The earnings, being dollar-linked, would serve as a natural hedge to reduce the risks associated with currency fluctuations, according to the firm.
This will help the company save an interest of around Rs 450 crore per year. Here, a substantial chunk of debt is still Rupee-denominated, as against 30-40 per cent for other peer steel companies in India.
“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 the volatility in earnings. The dollarisation of rupee debt would not only de-risk our balance sheet, but also elongate maturity and reduce interest costs,” said Ashutosh Agarwala, CFO of Essar Steel India.
Mumbai-based Essar Steel is a global producer of steel, with presence in India, Canada, the US and Indonesia. It is a flat carbon steel manufacturer with operations spanning from iron ore to ready-to-market products.
The firm has recently expanded its steel manufacturing capacity from 4.6 MTPA to 10 MTPA. Globally, it has a 14 MTPA capacity and operates seven service centres in India, with additional service centre in international locations.
(Edited by Sanghamitra Mandal)