Essar Steel raises $1 billion through ECB

Move part of its plan to derisk its balance-sheet

Essar Steel has raised $1 billion through external commercial borrowing (ECB) to derisk its balance-sheet, the company said.

Ashutosh Agarwala, CFO, Essar Steel India said, “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. The dollarisation of rupee debt would not only de-risk our balance sheet , but also elongate  maturity and reduce interest costs.”

This particular dollar debt has a maturity of seven years and the company intends to save Rs 450 crore per annum on interest.

Essar Steel said, "The earnings, being dollar linked, would serve as a natural hedge to reduce the risks associated with currency fluctuations."

ECB was subscribed by large group of banks led by IDBI and ICICI Bank.    

The company has a total debt on its books of around Rs 23,500 crore. In the last fiscal, the RBI allowed the company to raise $430 million through external commercial borrowings (ECB).

With its focus on "dollarising" its entire debt, the company has now raised $1 billion. In April this year, Dilip Oommen, managing director and CEO, Essar Steel had told Business Standard that the company would convert its entire rupee debt into dollars in the current fiscal.

He had said, "This will have a tremendous impact on our profitability. Our current interest cost from 12-13% will come down to 6-7%."

The company recently completed its expansion from 4.6 million tonne per annum (mtpa) of steel production to 10 mtpa. Off late, the company has been focusing on exports.

The company has already commissioned the first phase of 6 million tonne of pellet capacity in Odisha and is looking forward to commission the rest 6 million by the end of the current year. It is looking to sell the pellets in the open market after exhausting its needs as the company believes that India needs pellets for steelmaking and the company has a ready market.