Essar Steel Thursday said it has raised $1 billion overseas loan through External Commercial Borrowings (ECB) with a view to de-risk its balance sheet from currency fluctuations.
The company said it has raised the loan at a competitive London Interbank Offered Rate (Libor) linked interest rate.
"The dollarisation of rupee debt would not only de-risk our balance sheet but also elongate maturity and reduce interest costs," chief financial officer of Essar Steel India Ashutosh Agarwala said in a statement.
As a result of the "dollarising" its rupee debt, the company said it would save nearly Rs.450 crore per annum in interest. It will also gain significantly in terms of additional liquidity.
The External Commercial Borrowing (ECB) of the company was subscribed by a large group of banks led by IDBI and ICICI Bank.
Essar Steel said it has outlined a strategy to "dollarise" its balance sheet.
The company's move came in the backdrop of a sharp depreciation in the value of Indian rupee, which hit a record low of 59.93 against a dollar. The rupee has weakened by over 8 percent so far this year.
"Steel industry globally is going through a phase of weak demand resulting in lower realisations. It is imperative that the debt of the company is aligned to the earning currency thereby reducing volatility in earnings," Agarwala said.
As per the company's statement, substantial debt of Essar Steel is rupee denominated as against 30-40 percent in peer steel companies in India.
"Steel product prices in the international markets and domestic markets show a very high degree of correlation. As a result even though the domestic sales revenues are realised in Indian rupee, the pricing methodology of the same is based on the landed cost of imported steel, which in turn is based on a dollar rate," the company statement said.
