Mumbai Capital

Essar looks for debt relief, but will banks accede?

ssar Steel is in talks with bankers for extension of the March 31, 2016 deadline to sell assets and repay loans. Banks, however, may tread with caution in the light of the Kingfisher default.

Mahadev Iyer, director finance and CFO, Essar Steel, told The Hindu , “We are talking to banks and they have agreed to convert Rs 15,000 crore worth of loans to the 5/25 scheme. We are in talks to convert another Rs 15,000 crore of loans under this scheme. This will provide us significant breathing space.” The company is carrying a debt burden of Rs 39,000 crore.

Under the 5/25 scheme, banks are allowed to stretch repayment profiles for performing loans to infrastructure and the core sector for 25 years and recast loans every five years for projects that are running commercially.

Mr Iyer claimed banks know that Essar Steel is a ‘classic turnaround story’. “We have doubled the capacity utilisation to 70 per cent and will operate at 85 per cent in FY17 as gas prices have reduced to a third at $6 per unit and realisations have improved due to the government imposing MIP and BIS for imports.”

However, bankers are under pressure from the Reserve Bank of India to not go easy on debt-laden corporates post the Kingfisher fiasco and have called a meeting of top 50 corporates to step up pressure for recovery. Essar Steel promoters may agree to infuse Rs 1,500 crore of equity in the company to defuse the mounting pressure.

Essar Steel was looking to sell and lease back its slurry pipelines and coke oven to meet the repayment of debt obligations but RBI’s directive to ban sale and leaseback of assets put a spoke in the plans. Essar promoters last month had sold real estate in the Bandra Kurla Complex for Rs 2,400 crore to RMZ and leased it back.

Asked if the company could service its commitment to pay banks by March 31, 2016, Mr Iyer said, “We will be able to service the interest component, which is not likely to go beyond Rs 1,000 crore. Talks are on with the banks; they have been our partners for years and understand the nuances of the steel business.”

The company also claims that various efforts in production, sales and marketing, and cost improvements have resulted in an operational turnaround and resurgence of Essar Steel. Production has doubled since November and is operating at 70 per cent capacity utilisation, leading to a significant improvement in EBIDTA margin, according to a company statement.

On the ‘turnaround’, Dilip Oommen, MD & CEO, said, “Our efforts over the last few months in strengthening our operations, supported by stable markets and response from our customers, has given us the confidence to aim for full production in the next fiscal.”

According to SK Roongta, principal advisor Essar Steel and former SAIL chairman, “The company lost about Rs 5,500 crore as it didn’t get the KG basin gas, allocated to the company due to a fall in production. It was not advisable to operate plants with gas prices of $21 per mmBtu, now since the gas prices have come down to $6 per mmBtu, the company’s margins will significantly improve.”

Meanwhile, Essar promoters have agreed to sell a 49 per cent stake in Essar Oil to Russian oil giant, Rosneft, in an all-cash deal worth $2.8 billion, to bring down debt. Investment advisor SP Tulsian believes banks have become strict in their recovery with the instruction from RBI and finance ministry and there will be no rescheduling, deferment of loans or moratorium period.

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Printable version | Jan 25, 2021 8:37:41 PM |

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