Steel min asks VSP to raise debt amount for expansion

The Ministry of Steel, Government of India, has suggested to the Visakhapatnam Steel Plant (VSP) to increase the debt amount to Rs 4,100 crore from the earlier option of Rs 2,000-2,500 crore for taking up its expansion project.

VSP had submitted a Rs 8,250-crore proposal to the central government some six months back to increase the production capacity from the existing 3 million tonnes to 6.8 million tonnes. It is expecting the Cabinet's nod within two-three weeks.

Initially, VSP decided to mobilise loans of about Rs 2,500 crore from financial institutions and the remaining through internal accruals. VSP has cash reserves of about Rs 3,000 crore in various banks. It recently called for global tenders for the purpose.

"About 45 nationalised and private banks in the country, including nearly nine international banks, came forward to finance our expansion project," P K Bishnoi, director (finance), VSP, told Business Standard. VSP is expecting this loan amount at an interest rate of 6 to 8 per cent.

"As the Ministry of Steel has suggested that we increase the debt equity ratio to 1:1, we are working out to get loans up to Rs 4,100 crore from financial institutions. We are expecting the loan amount to come with an interest of about 6-8 per cent," he said. VSP is hopeful of starting the expansion works during this financial year itself.

Due to increase in several raw material costs by 40-70 per cent and payment of corporate tax, VSP is anticipating its net profit to drop marginally this year as compared to last fiscal.

"Actually, VSP planned to clear all its accumulated losses by the end of September but it had to pay about Rs 200 crore as corporate tax to the government for the first half of the current fiscal. Owing to this, it will take some more time for VSP to clear all its accumulated losses," he said.