Mumbai, Nov. 20: Two Essar group companies — Essar Oil and Essar Steel — are slashing their debt servicing costs by converting high cost rupee debt into cheaper overseas loans. Both companies have received approvals from the Reserve Bank of India (RBI) to raise funds through external commercial borrowings (ECBs).
Sources said that while Essar Oil had received the RBI’s approval to raise up to $1.5 billion in ECBs, Essar Steel has got the green signal to raise $430 million.
In both these cases, the borrowings will be used to swap rupee debt into foreign debt, thereby bringing down the borrowing cost by around 6 percentage points.
Essar Oil has total debts of around Rs 16,500 crore. Essar Steel’s debt could not be ascertained as it is an unlisted entity.
“As a policy, we do not comment on any specific transaction,” said an Essar group spokesperson when asked about the debt conversions.
“However, we would like to add that the Essar Group continues to work on reducing the cost of debt across all its businesses so as to align its financing costs with global levels,” the spokesperson said.
Sources added that the central bank had permitted the two companies, which have significant export potential, to avail of dollar financing and repay rupee debt. This move is expected to align the balance sheet to the currency of its business — the US dollar. They said these measures were being taken not only to refinance or restructure the existing debt but also bring down finance costs as far as possible.
Both Essar Steel and Essar Oil, which have huge export earnings, have completed capacity expansions and are looking to access dollar financing to serve as a natural hedge with reduced interest costs.
Essar Oil owns India’s second largest single site refinery with a capacity of 20 million tonnes and complexity of 11.8 on the Nelson index, which is amongst the highest globally. The refinery commenced commercial production in May 2008 with a capacity of 10.5 million tonnes and complexity of 6.1. It has been significantly upgraded in recent months. It also has a portfolio of onshore and offshore oil and gas blocks.
“Our projects have been completed. The focus is now on providing returns to stakeholders,” an official said.
Meanwhile, group firms Essar Shipping and Essar Ports are planning to bring down the promoter stakes to comply with the Sebi requirement that says that public holding in listed companies must be at least 25 per cent. Market regulator Sebi has given listed firms time till June to pare their promoter holding if it is in excess of 75 per cent.