The holders of Essar Steel's $250 million floating rate notes are meeting in London tomorrow to clear a proposal from the company for a five-year rollover.
The rollover package proposes a three-stage payment plan"" 10 per cent of the value of the notes in the third year, another 10 per cent in the fourth year and the remaining 80 per cent in the fifth year.
The move by bondholders will clear the decks for Essar Steel's debt restructuring which had been held up because of the stalemate over the FRN issue. The clearance of the five-year rollover will also remove the only stumbling block for the Essar group's overall restructuring programme.
A spokesperson of Essar group confirmed that a revised offer notice had been sent to the bondholders a few days ago.
Essar Steel had mandated Banc of America Securities to work out a restructuring plan for Essar Steel which included resolving the FRN issue. The plan aims at reducing the debt in the company by
Rs 1000 crore so that the debt-equity ratio can be reduced from 2.1:1 to 1.5:1.
The gameplan entails extending the maturity of the loans taken by Essar Steel from financial institutions, from two to three years to seven to eight years and floating a 1:1 rights issue of Rs 330 crore. After the rights issue, the equity of the company will go up from Rs 2100 crore to Rs 2400 crore.
The company has already divested 51 per cent equity stake in the pelletisation project to Stemcor after spinning of the division into a separate company which helped in clearing over Rs 600 crore debt.
Essar Steel is expected to pay back the FRN dues primarily through surplus generated from the company especially with steel prices firming up internationally.
The company made a profit of Rs 4.83 crore in the first quarter of this fiscal against a loss of Rs 137.96 crore in the corresponding quarter last year. At the same time, the total income rose by 50 per cent to Rs 692.74 crore in the same period.
The FRN issue came to the fore in July last year when the Essar group asked for an extension of the redemption date. With the institutions refusing to refinance, Essar worked out various alternative schemes which included a five to seven year rollover plan or redemption at a mutually agreed discounted price.
The Ruias as a group have successfully undertaken a financial closure in Essar Oil with financial institutions clearing a Rs 1150 crore loan.
The promoters will bring in fresh equity of another Rs 600 crore in the company. Essar Telecom, another group company, has formed a strategic alliance with Hong Kong-based Hutchison for Delhi and Mumbai cellular circles.
