Essar Steel seeks $120 million loan

Approaches SBI and Barclays.

Essar Steel has approached State Bank of India and the England-based Barclays to raise a five-year loan of $120 million (about Rs 540 crore) to fund its expansion plans.

The banks will ask other lenders to join the deal, offering 255 basis points over the Libor (London inter-bank offered rate), a benchmark for borrowing, said sources.

The three-month rate has been fixed at 4.71 per cent.

Essar is raising the funds to finance the last phase of its Rs 2,000 crore expansion, launched last year.

The plans include expansion of the steelmaker's capacity from 2.4 million tonne to 4.6 million tonne a year. The company has already reached the 3-million tonne mark and expects to touch 4.6 million tonne a year capacity by July this year.

Interestingly, Essar had raised resources before, but those under its CDR (corporate debt restructuring) package. The $120 million loan is its first to finance the expansion.

The steel manufacturer plans to be out of the package, which aggregated Rs 2,800 crore, by the end of the current financial year.

Essar is the second major steelmaker after Tata Steel to raise resources. Last week, Tata had contracted a $400 million (about Rs 1,800 crore) borrowing through International Finance Corporation (IFC).

The loan includes $100 (Rs 450 crore) million tranche from IFC. Another $300 million (including a greenshoe option of $100 million) has been syndicated out by IFC. The company will also borrow about Rs 2,400 crore to expand its manufacturing capacities.

Tata Steel too plans to augment its steel making capacity at its existing plant in Jamshedpur to 10 million tonne a year by 2010 with an estimated investment of Rs 11,000 crore.

Besides, it plans to set up a greenfield project with a capacity of 12 million tonne a year, possibly in the Saraikela-Kharswan region, entailing a further investment of Rs 42,000 crore.