Essar Steel drops foreign bond issue

Essar Steel Holdings has cancelled its plan to raise about $750 million (Rs 3,360 crore) through dollar-denominated bonds, amid rising investor concern over Europe’s debt crisis. The company plans to revive the issue after at least two quarters, according to a banker familiar with the development.

The company had earlier said it planned to issue senior notes due in 2017 to refinance debt and raise fund for potential acquisitions. It had hired Bank of America Corp, Deutsche Bank AG, Standard Chartered and UBS to help it raise the money.

“The company believes it will be much better placed to achieve its desired result in debt capital markets following the near to medium term [ramp up of its production facilities] and so has decided to postpone its planned financing for the time being,” said a company spokesperson in an emailed response. “In the meantime, we will keep investors informed about the progress of Essar Steel Holdings and its subsidiaries and want to build on the relationships we have able to develop with investors over the last few weeks,” he added.

Last month, Moody’s Investors Service gave a provisional B2 rating to Essar Steel’s proposed bonds, its fifth-highest speculative-grade ranking. It graded the company one notch higher at B1.

“The ratings will be under pressure if the bond issue fails to proceed in view of Essar Steel’s weak liquidity and high refinancing risk,” Moody’s had said. According to data by Bloomberg, the Essar Group, the parent company of Essar Steel, has equivalent of $1.9 billion in bonds outstanding. Of this, $1 billion is due to mature next year.

Essar Steel is at least the fourth Indian company to postpone a planned bond sale since February. Union Bank of India dropped a dollar bond sale on April 14, after Bank of India and Bank of Baroda cancelled similar issues in February, citing volatility in credit markets.

Bank of Baroda and Bank of India returned to the debt market a month later, selling $350 million of 5 1/2-year bonds and $500 million of similar-maturity notes, respectively.