The $35 billion Essar Group is in talks with bankers seeking various alternatives and extend a deadline to repay loans of Essar Steel in the backdrop of its turnaround, a top official said.
Talking to The Hindu , Mahadev Iyer, Director Finance and Chief Financial Officer, Essar Steel, said the company, saddled with debts of Rs.39,000 crore, was in talks with the bankers for extension of the deadline for selling assets and repaying loans and converting Rs.15,000 crore of loans to the 5/25 scheme.
As per the 5:25 flexible structuring scheme, the lenders are allowed to fix longer amortisation period for loans to projects in the infrastructure and core industries sector, for say 25 years, based on the economic life or concession period of the project, with periodic refinancing, say every 5 years.
“We are talking to banks and they have already agreed to convert Rs.15,000 crore of loans to 5/25 scheme and we are in talks to convert another Rs.15,000 crore of loans under this scheme.
“This will provide us significant breathing space. Banks know that Essar Steel is a classic turnaround story.
“We have doubled the capacity utilisation to 70 per cent now and will operate at 85 per cent in the FY17 as gas prices have reduced to one-third at $6 per unit and the realisations have improved due to government imposing MIP and BIS for imports,” Mr. Iyer said.
However, bankers are under pressure from RBI not to go easy on debt-laden corporates after the Vijay Mallya-led Kingfisher fiasco and has called for a meeting of representatives of top 50 corporates to step up pressure for recovery. Essar Steel promoters may agree to infuse Rs.1,500 crore of equity into the company to defuse the mounting pressure.
Investment advisor S. P. Tulsian believes that banks have become strict in their recovery with instructions from RBI and the finance ministry and there will be no rescheduling, deferment of loans or moratorium period.
“I have my doubts if Essar Steel will be able to operate at 85 per cent capacity next fiscal given that India’s steel consumption is far below its installed capacity and Indian firms are not competitive in the global markets because of competition from China,” Mr.Tulsian told The Hindu.
The company was looking to sell and leaseback its slurry pipelines and coke oven to meet the debt repayment obligations but RBI’s directive banning sale and leaseback of assets restricted Essar promoters from selling these assets.
Essar promoters last month had sold real estate in the Bandra Kurla Complex for Rs. 2,400 crore to RMZ and leased it back.
When asked if the company will be able to service its commitments to pay the banks by March 31, 2016, an optimistic Mr. Iyer said, “We will be able to service the interest component, which is not likely to go beyond Rs.1000 crore. Talks are on with the banks. They have been our partners for years and understand the nuances of steel business.”
Meanwhile, the all-round efforts of the company in various facets of its operation like production, sales and marketing and cost improvement have resulted in an excellent operational turnaround and resurgence of Essar Steel, according to a company statement.
Talking about turnaround, Dilip Oommen, MD and CEO, said,“Our efforts over the last few months in strengthening our operations, supported by stable markets and encouraging response from our customers, has given us the confidence to aim at full production in the next fiscal.”
