Frn Holders Clear Essar Rollover Plan

The holders of Essar Steel's $250 million floating rate notes have cleared a five-year rollover programme. Ninety per cent of the note holders passed a resolution clearing the proposal in an extra ordinary general meeting held in London on Tuesday. The scheme has two options one roll over of 5 years with a lower interest rate and the other with a call option which could be exercised in the first three years for early payment at the company's option with discount. The repayment will commence in three phases with 10 per cent of the value of the notes falling due on the third year, another 10 per cent in the fourth year and the remaining 80 per cent in the fifth year. A majority of 70 per cent of the noteholders selected to exchange into the Series A notes which carry lower interest rate and for fully extended term of five years while 30% selected Series B notes.which has a call option. As a result of this meeting as much as 98 per cent of the outstanding notes have been accepted for exchange and thus the issue of default now stands settled. The move by noteholders 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. 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. Essar Steel is expected to pay back the FRN dues primarily through surplus generated from the company especially with steel prices firming up inernationally. 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.