Essar Oil to swap rupee debt with dollar loans

Ruia brothers-owned-Essar Oil is taking a leaf out of Reliance Industries Ltd (RIL)’s book, starting road shows to swap its rupee loans worth $2.2 billion (Rs 11,700 crore) with dollar loans, thus taking advantage of the good appetite from investors for the Indian paper. The road shows are in the backdrop of a runaway spike in its share price, which has shot up 31 per cent since January 1, compared to the two per cent rise in the BSE benchmark Sensex during the same period.

Last week, RIL launched its first perpetual bond, which received overwhelming response from foreign investors. Sources say Essar Oil officials have started talking to foreign investors to swap its costlier rupee loans with dollar loans after getting the permission from the Reserve Bank of India.

The loans will be raised in the next few weeks.

Corporate India is increasingly swapping its high-cost rupee loans with foreign loans. The costs of foreign loans, without any forward cover, is around six per cent when compared to Indian loans, which are raised at an average rate of 12 to 13 per cent, say chief financial officiers. Apart from Essar Oil, Videocon is also looking to raise foreing loans from overseas banks to bring down its interest costs. Just like RIL, Essar Oil also sells its products from its 20 million tonnes per annum Jamnagar refinery to Indian public sector oil companies on import parity price, which helps meet the foreign exchange risk.

Analysts say it is very important for the Ruia company to cut costs as it made provisions for Rs 6,169 crore worth of sales tax to the Gujarat government after the Supreme Court rejected its appeal to retain the tax under the Gujarat capital investment intensive scheme. Due to the non-inclusion of sales tax incentives, the company’s accumulated losses as on March 31 2012 is Rs 4,230 crore, which is more than 50 per cent of the peak net worh in the preceding four years. However, the company had not made cash losses in fiscal 2012.

In order to improve the net worth of the company, its London-listed promoter Essar Energy has modified the optionally convertible bonds worth Rs 1,340 crore into compulsory convertible bonds .

Sources say the company has also taken steps to exit the corporate debt restructuring and is expecting to complete the documentation by March 31 this year.