Essar Steel yesterday notified the holders of its $250 million floating rate notes (FRN) that it was not paying up the redemption value on the due date of July 20, making it the first Indian company to default on international obligations.
However, the company said it intends to present a comprehensive plan to the noteholders within 90 days of the scheduled redemption date. The plan could include either refinance or extension of the maturity of the FRNs.
Essar Steel will now have to call for an extraordinary general meeting of its noteholders to seek their approval for the plan.
The notes were issued in 1994 and were due for redemption on July 20.
In a press release, the company said it had "notified the noteholders through the trustees that it is currently examining the possibility of refinancing the notes, or seeking an extension of the maturity of the notes."
The company also said it "proposed to pay the interest due on FRNs shortly."
Sources in financial institutions (FIs), however, insisted there was no change in their plan. "Our instructions to the company to seek a rollover for a period of five years stand," an official with one of the FIs said.
The FI sources said the company had not reverted to the FIs on the rollover.
"The company has been making alternative proposals for funding the redemption, but our stand is very clear," the official said.
The official said since Essar Steel had failed to notify its note holders well in time to seek their consent, it was left with no option but to "buy time...It needs to present a credible plan of action (towards repayment of the notes) to the lenders before it can ask for a rollover. It may take three months or more."
However, sources close to the company said that Essar Steel had not exhausted its options and it would use the interim period of 90 days to explore other alternatives, "failing which it would move towards a roll over (of the FRNs)." Meanwhile, Indian banks, which hold $40 million worth of FRNs, said they would consent to a roll over only if the interest rate on the notes was hiked by "at least 200 basis points" and the notes were backed by some security. SBI holds $ 5 million, BoB $10 million and BoI $15 million andUCO Bank holds $ 5 million. While banks said they were yet to receive the notice from Chase Securities, sources said banks would insist on "some collateral backing for the unsecured paper."
Yesterday's notice to the trustees sets in motion the process for a roll over. Its solicitors, Udwadia, Udeshi & Bergis are said to have advised the company that "if any modification to the terms of the (FRN) issue, such as extending the repayment date, is sought, it is necessary that an extra ordinary general meeting of note holders should be convened, and such modifications can be approved only if a special seoslution is passed at such meeting." However, in terms of the trust deed, underlying the FRNs, the solicitors have said that "before requesting the trustees to convene such a general meeting, it will be pre-requisite that you inform the trustees that you would be committing default in repayment of the loans on due dates." e=2>
With Mankad's departure, the way will be paved for the appointment of the 12th I&B secretary since 1989. Sources disclosed that secretaries in some other top economic ministries would also be reshuffled.
The reshuffle proposal follows the appointment of finance secretary Vijay Kelkar and health secretary B P Singh as executive directors in the International Monetary Fund and World Bank, respectively.
The three contenders for the post of finance secretary are Mankad, RBI deputy governor Y V Reddy and N K Singh, secretary in the Prime Minister's Office.
The Appointments Committee of the Ca
