Birlas infuse Rs 1,100 cr in Essel Mining to pare debt of group firm IGH

The proceeds were used to on-lend to IGH and prune its borrowings by 40% by March 2020

In a bid to reduce debt, Essel Mining, the unlisted promoter entity of Aditya Birla Group (ABG) has raised Rs 1,100 crore to on-lend to IGH Holdings Private Limited (IGH). The additional fund infusion reduced IGH Holdings debt to Rs 1,800 crore by March 2020 from Rs 3,000 crore. Its lenders are expecting to continue the debt reduction plan in the current fiscal also.

IGH Holdings is among the main vehicles of the Birla family promoter entities, which holds stake in various listed companies. IGH holds stake worth Rs 14,000 crore in Hindalco Industries Ltd, Grasim Industries Ltd, Aditya Birla Fashion and Retail Ltd, Vodafone Idea and Century Textiles and Industries Ltd).

As per a banker, the returns generated from IGH’s investment portfolio in fiscal 2020 were lower than the interest burden on IGH’s borrowings, leading EMIL to step in and bridge the gap.

This is the second time Essel Mining received funds from the promoter entities as in fiscal 2019 too, the Birla family had made an equity infusion of Rs 1,447 crore to provide support to IGH to meet its business needs – especially to invest in Vodafone Idea rights issue.

Unlisted Essel Mining is also reducing its debt and in the fiscal 2020 managed to  cut its consolidated debt to around Rs. 5,037-crore as on January this year from Rs. 6154-crore as on March 31, 2019, registering a decline of around Rs. 1,117-crore.

The Birla group is not alone in reducing debt as interest rates decline. Several Indian companies including India’s largest firm, Reliance Industries has taken a host of steps including stake sale to Facebook in its telecom venture, Jio to reduce its debt. RIL is striving to become a net debt free company by the current fiscal end.

Unlisted Essel Mining, which earns a substantial chunk of its revenue from iron ore mining in Odisha, is expected to reduce its debt further in the current financial year.  

In the financial year 2020, Essel Mining prepaid part of its loans and will continue the same strategy in the current fiscal following surplus cash flow generation in the wake of uncertainty of mining operations due to expiry of mining leases. The lease of Essel Mining’s two iron ore mines have expired in March this year which is likely to impact its cash flow.

Reducing debt burden

• Essel Mining on an aggressive debt reduction spree
• Essel subsidiary, IGH Holding owns stake worth Rs 14,000 cr
• Essel/IGH to prepay loans in fiscal 2021
• IGH debt falls to Rs 1800 cr from Rs 3,000 cr