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Essar Steel plans to raise $2 billion through pre-export finance to retire rupee-denominated debt, aimed at freeing its balance sheet from fluctuation in currency rates and ensuring at least Rs 850 crore annual savings.
"Essar Steel is proposing to raise $2 billion through pre-export finance and the proceeds will be utilised for pre-payment of existing rupee debt, for which the company has received necessary approvals," it said in a release today.
Lenders use the pre-export finance route to provide funds to exporters in advance necessary to produce goods. Usually, the exporter arranges a commitment from the buyer to make the payment directly to the lender. After payment receipt, lenders deduct the loan amount and interest and other charges before forwarding the balance to the exporter.
Essar Steel said the move to retire rupee-denominated debt is line with its strategy to dollarise balance sheet. The company had in June raised $1 billion through External Commercial Borrowing (ECB) resulting in an annual saving of Rs 450 crore. Essar Steel reportedly has $4 billion debt on its books.
"With this financing, the company would have dollarised three billion dollars of its debt which will lead to significant benefits. This will result in interest saving of approximately Rs 1,300-1,500 crore annually," Essar Steel said.
This would help the company to elongate average maturity of its debt from 3.5 to 6.5 years.
"We are continuing with our strategy to dollarise our balance sheet, bring down interest cost and elongate maturity of our debt in line with our peers," said Ashutosh Agarwala, CFO and Director (Finance), Essar Steel.
Essar Steel has invested Rs 37,000 crore for setting up of a 10 million steel plant in Hazira, Gujarat.
Expansion of the facilities at the unit was undertaken when Indian rupee was trading at 40 to a dollar and now with exchange rate a little over 60, the company would save significantly by 'dollarising' its balance sheet at the current exchange rate.
