Steel firms line up Rs 80,000 cr capex plans

The biggest capital expenditure plans are those of the state-owned Steel Authority of India (SAIL), at Rs 25,000 crore, and Tata Iron and Steel Company (Tisco), at Rs 23,000 crore.

Bhushan Steel & Strips will be spending Rs 3,200 crore for backward integration. Similarly, Jindal Steel & Power plans to expand its capacity at a cost of Rs 3,050 crore, while Essar Steel is looking at a Rs 4,400 crore expansion and acquisition plan.

Most of the expansion plans are large in relation to the existing size of the steel companies. According to global rating firm Fitch Ratings, Tisco's capital outlay in terms of expansion will be equivalent to 195 per cent of its assets.

Likewise, in the case of SAIL, the figure is 90 per cent. Bhushan Steel & Strips' Rs 3,200 crore capital outlay is equal to 109 per cent of its assets and Jindal Steel & Power's Rs 3,050 crore capital expenditure is equal to 155 per cent of its assets.

If steel manufacturers are hugely raising capacity, it is because the consumption of steel, according to a steel ministry report, is expected to increase to 55-60 million tonnes by 2011-12 and further to 100 million tonnes by 2020.

Most of the funds required for the capital expenditure plans will be raised through debt. However, the appetite of domestic banks for extending financial assistance to the expansion plans would be limited, said senior bankers.

Almost all banks already have large exposures to the steel industry. So, steel companies will have to explore the option of raising funds overseas, including through equity issues.

Analysts expect an increasing number of steel companies to float foreign currency convertible bond issues. Fitch also expects many of the family-run companies to shed their inhibitions and raise funds by way of equity or warrants.