Essar to issue CCP shares to Power

The Shashi Ruia-controlled Essar Steel has devised an ingenious way to reduce its debt.

It is planning to clear off the Rs 460 crore dues it owes to group company, Essar Power, by handing out 0.01 per cent cumulative convertible preference (CCP) shares.

These shares can be converted into equity within 18 months from the allotment date.

But in the process of cleaning up its balance sheet, the spinoff is that the promoter group holding in flagship Essar Steel will rise from 56.72 per cent to 71.88 per cent.

Post share conversion, Essar Power's stake will stand at 32.36 per cent in Essar Steel, which holds close to 40 per cent in Essar Power.

The Essar Steel annual report states, "In case allotment of equity shares upon conversion of 0.01 per cent cumulative convertible preference shares proposed is made, then Essar Investments and Essar Power and persons acting in concert with it will hold 71.88 per cent and public, including financial institutions, banks and mutual funds, will hold balance 28.89 per cent of the then equity of 76.68 crore shares."

The proposed increase in issue capital excludes impact of the proposed reduction of capital by 40 per cent, recommended by the Corporate Debt Restructuring proposal.

The annual report further states that on conversion, the proposed allotee of shares, Essar Power, will hold 32.36 per cent of the post issue capital of Rs 787.94 crore.

Essar Steel board is expected to allot the shares of Rs 90 each to Essar Power within 15 days of the day of passing of the resolution in the company's annual general meeting on August 7.