Essar Steel to raise over $500 mn via long-term debt

Essar Steel Holdings (ESHL) will raise funds from overseas markets, possibly up to $500 million (Rs 2,225.20 crore), through long-term debt to refinance its existing borrowings, besides funding its capital expenditure and potential acquisitions.

The company in a statement today said the fund will be raised by issuing senior unsecured notes in dollar denominations due in 2017.

Senior unsecured notes are long-term debt instruments, whose creditors are preferred over others for repayment in case of bankruptcy of the issuer.

"The company intends to use the net proceeds from the sale of the notes to refinance existing debt and for general corporate purposes, including capital expenditures and potential acquisitions," the company said.

It, however, did not specify how much fund the company would raise through the process.

While Essar Steel spokesperson declined to provide the issue size and other details, a source in the know of the development said the amount would be upward of $500 million.

"It will, however, depend on investors' response to roadshows that the company has started, including in Singapore today," the source added.

The notes will be offered to qualified institutional buyers in the United States, it added.

Meanwhile, rating agency Standard & Poor's gave a stable outlook to the company's long-term corporate credit, giving it a 'B' rating, which suggests speculative grade.

As per the agency, as of December 31, 2009, ESHL had $467 million in cash, $537 million in available credit lines. In turn, its short-term debt amounted to $1,639 million.

Upon issuance of the proposed notes and refinancing, ESHL's consolidated short-term debt should reduce to about $700 million, of which $300 million would be working capital loans, S&P said.

Incorporated in Mauritius, Essar Steel Holdings comprises Essar Steel's global as well as Indian operations with manufacturing facilities in India, North America and Indonesia.

As per the rating agency, the company's expansion projects should increase the production capacity to 14 million tonnes per annum (MTPA) from the existing 9 MTPA.