Essar Steel to revisit bond markets again

Waiting for market improvement; likely to revive last year’s plan of refinancing debt in coming quarter.

On its way to be a 10-million tonne steel company, Essar Steel India has planned to revisit the earlier plan to refinance its debt. The company would be coming to the international bond market in the coming months.

Last year, Essar Steel Holdings, the Mauritius-based company which owns the steel business of the diversified (telecom, steel, energy, etc) conglomerate, had initiated a process to raise almost $1 billion through bonds to fund its growth plans and replace costly debt. The exercise had to be dropped after the euro debt crisis.

Malay Mukherjee, CEO, Essar Steel, told Business Standard, “If there is a good market for fund raising, we will try and do it. We are looking for favourable market conditions, which we believe may be in the next quarter.”

As of now, he said, “The international market is still not so good.” He did not specify how much money would be raised.

“We will announce how much we are raising at the end of the road shows.” Many Indian companies — Tata Steel, Tata Power, Vedanta, ICICI Bank — have tapped the global bond market in the recent past to raise funds. Nor did Mukherjee disclose the amount of debt that Essar Steel would refinance or the current debt on its books.

Being an unlisted company, he said, it was not mandated to make any public disclosures. He did say, though, only the debt in the Indian company would be replaced, as those in Essar Steel Algoma and Minnesota are foreign currency debt and much cheaper already.

Last July, Essar Steel had merged four of its Indian entities into one, consolidating its scattered debt into a single company. The earlier debt was scattered between Essar Steel Hazira Ltd, Essar Steel Orissa Ltd, Hazira Plate Ltd and Hazira Pipe Mill Ltd. These are now all combined into the books of Essar Steel Ltd (ESL).

These four companies were set up outside ESL because the latter was weighed down by debt and the group did not want to put further pressure on its finances.

After consolidation, Essar Group sources said, ESL would have debt on the books of Rs 17,300 crore and equity of around Rs 14,000 crore for its India operations.

The average interest rate on Essar Steel India’s books was 10.5-11 per cent. Mukherjee said, “The interest rates in the foreign bond markets is five-six per cent currently, and because we do a lot of exports, we don’t have the threat of foreign currency fluctuation, etc. So, we can afford to take a foreign currency loan at cheaper interest rates and it is hedged naturally by our exports.”

At present, it is exporting 1.2-1.5 million tonnes of steel every year and aims to take this up to three mt once expansion is complete. At the end of 2011, the company will be producing 8.5 mt of steel and aims to reach 10 mt by December 2012.