Essar Steel to raise Rs 2,241 cr by selling 3 non-core assets

Essar Steel aims to raise a minimum of Rs 2,241 crore by selling three non-core assets for paring some of its  $4 billion (around Rs 24,400 crore) debt and reducing the strain on its balance sheet.

     
The Ruias-promoted leading steelmaker has convened an extraordinary shareholders' meeting on Saturday, August 24, seeking their approval.

The move was necessitated due to 2.22 times rise in Essar's standalone net loss in the last fiscal to Rs 2,785 crore. Its interest payments had also risen by nearly 41% to Rs 3,140 crore, while total expenditure, at Rs 15,079 crore, had overshot its total income, at Rs 15,038 crore. 

"In order to improve liquidity, reduce debt burden and to focus on the core business area, a financing plan has been worked out. Under this plan it is proposed to sell out or otherwise transfer some of the undertakings/assets/projects to strategic investor/SPV company, on going concern basis," the company said in its notice for the EGM.

Simultaneously, the company will sign long term supply/ service agreement with the buyer to ensure smooth functioning of operations.

According to the plan, Essar is in advanced stage of negotiations with Inox Air Products to sell one its undertaking which is in the business of production of oxygen, nitrogen and argon etc for captive supply of company's needs at its Hazira plant "for not less than Rs 800 crore".

It is also planning to sell 1.53 million tonnes per annum under construction coke oven plant project and 253 km long Odisha slurry pipeline project between Dabuna and Paradeep for "not being lower than (their) book value".

The book values of coke oven plant and slurry pipeline are Rs 642.05 crore and Rs 799.82 crore respectively.

A company spokesperson said that "these are none core assets to steel making and forms insignificant part of the total assets of the company. Essar Steel proposes to outsource these assets since it can be operated more efficiently by the company's specialising in these activities."

Early this month, the company had said that it will be raising $2 billion through pre-export finance to retire rupee-denominated debt. The move is aimed at freeing Essar's balance sheet from fluctuation in currency rates and ensuring at least Rs 850 crore annual savings on interest payments.

     
The company already has RBI permission to raise upto $2 billion through export securitisation and is aiming to complete it during the current fiscal. In June, the company had raised $1 billion through External Commercial
Borrowing (ECB), which will result in Rs 450 crore savings annually.

     
Essar has invested about Rs 37,000 crore to increase its steel making capacity to 10 MTPA from 4.6 MTPA. The new capacity was envisaged as an integrated facility with dedicated iron ore pellet supplies from a pellet plant in Odisha, a dedicated port, coal based power plant and a 400 kva transmission line.