The Telegraph
Since 1st March, 1999
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Essar to buy back FRNs at a discount

New Delhi, May 22: Loss-making Essar Steel has decided to buy back its dollar-denominated floating rate notes (FRNs) worth about $ 250 million at a massive discount of 76 per cent.

Sources said the company has decided to fork out 24 cents to the dollar to buy back the FRN. This was decided at a meeting with holders of these notes at London earlier this week. Essar was one of the first Indian steel majors to have defaulted on its foreign loan repayments.

Speaking to The Telegraph, Essar Group resident director J. Mehra said the negotiated discounted buyback would help Essar bring down its unsecured debt portfolio by three-fourths. “However, our debt cost still remains extremely high — an average of 12 per cent — mainly because Indian rupee loans continue to attract rates of interest of about 14 per cent,” Mehra said.

Nearly three-fourths of those who owned FRN notes agreed to the discounted buy back at a meeting with Essar Group vice-chairman Ravi Ruia. The remaining holders have been asked to take either of two options — roll over for another 15 years at a quarter per cent above Libor or else go in for a rupee conversion of their debt which too would be paid back after 15 years and carry a 8 per cent rate instead of the current 2.5 per cent over Libor.

Bank of India and Punjab National Bank are believed to be bankrolling the buyback. BoI has funded Rs 250 crore and PNB has agreed to fork out another Rs 100 crore in principle, though it has still to agree to a rate of interest.

Along with other new private sector steel companies like Jindals and Lloyds, Essar had been given a debt restructuring programme by Indian debtors, most of whom were state-run banks and financial majors.

Essar Steel has been in the dumps partly because of massive gold plating of its overhead costs which resulted in huge interest and depreciation burden and partly because of the downturn in global demand for steel.

However, the recent pick-up in steel demand has helped it reduce losses and Essar reported last quarter that losses have been pruned to Rs 26 crore from Rs 186 crore.

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