Banks to meet on Essar Steel debt recast today

Essar Steel carry's Rs 40,000 crore debt as on March 31, 2016

Lenders to Essar Steel will be meeting on Wednesday to discuss restructuring of company's long-term debt of Rs 40,000 crore. The meeting will discuss various options including conversion of portion of loan into instruments carrying specific interest rates.

The proposal coming up for discussion has been on the table for the last couple of months after Essar Steel failed to meet its June deadline to find a new buyer for their 10-million-tonne plant.

"Though steel prices have moved up and the benefit of MIP (minimum import price) has improved financial profile of steel companies, it is still inadequate to meet repayment burden," a senior public sector bank executive told Business Standard.

He, however, did not elaborate on details of the proposal made by the steel producer. "The only option in a such scenario is to convert part of debt into instruments like preference shares which carry coupon. This could reduce the interest obligation for sometime. Over a period, this instrument could be redeemed as benefits of higher steel price accrued to companies," he added.

Of the total Rs 40,000 crore debt Essar Steel carry's as on March 31, 2016, about Rs 10,000 crore is the company's working capital loan.

"The company is in discussion with its lenders to restructure its long term debt. The proposal of the company is under consideration and we are hopeful of a positive conclusion of the same in the near future," said Essar Steel spokesperson via email. "Essar Steel has improved its performance over the last six months with increasing capacity utilisation which is currently at over 70 percent," said the email.

Debt-laden Essar Steel had been looking for a buyer since November. The company had decided to induct a strategic investor and also appointed SBI Caps and ICICI Securities for this purpose. However, with steel industry continuing to go through a rough phase with cheap Chinese steel sailing to all parts of the world including India, Essar Steel did not receive a single bid for its plant.