Steel firms eye foreign debt to swap local loans

The Indian Steel Alliance (ISA) has approached the finance ministry to allow its private member companies "" Tata Iron and Steel Company (Tisco), Essar Steel, Ispat Industries and Jindal Vijaynagar Steel Ltd (JVSL) "" to replace their high-cost domestic debt with cheaper international loans.

These companies, accounting for over 80 per cent of the total domestic production of long steel, have to repay debt of over Rs 20,000 crore. It is estimated that the five steel majors in the alliance, including public sector Steel Authority of India Limited (SAIL), have paid back Rs 8,000 crore during 2003-04 to financial institutions, banks and overseas lenders, following the increase in  steel prices.

While SAIL repaid Rs 4,500 crore, Tisco and JVSL reduced their debt burden by about Rs 400 crore and Rs 1,200 crore, respectively. Essar Steel also brought down its debt by about Rs 1,900 crore.

According to Moosa Raza, president, ISA, "The private steel producers have asked the government through the alliance to permit them to float foreign currency bonds to swap their high-cost domestic debt with cheaper foreign loans."

This move is expected to help companies substantially reduce their debt burden as they are paying a high interest on their existing domestic loans. According to him, the present interest rates are high even after they have been brought down from 19 per cent to 12-14 per cent.

The finance ministry's approval is required as domestic companies are not allowed to raise money in foreign currency to replace their domestic loans.

Raza termed the government's decision to suspend the duty entitlement passbook scheme (DEPB) from March 27, 2004 as "shortsighted", saying exports constituted only a small portion of the steel production in the country. "We hope that DEPB benefits will be restored after the elections," he said.

The production of hot-rolled coils by the five ISA companies jumped 9 per cent during 2003-04 to 13.15 million tonnes. Of this, exports grew only 2 per cent year-on-year to 2.89 million tonnes (MT), while domestic sales were up 10  per cent at 10.29 MT. Exports as a share of total sales fell to 13 per cent during 2003-04 from 14 per cent a year earlier.

On HR coil prices, Raza said the current price of Rs 25,000 per tonne would be held till June. "After June, the prices will be reviewed. If the international prices come down, then we will not increase prices," he said.