The Essar group, the Rs 2,500-crore steel, oil, telecommunication and power conglomerate, is planning external commercial borrowings (ECBs) of about $1.13 billion (Rs 4,080 crore) to repay high-cost debt and fund expansion.
Essar Commvison, the holder of the letter of intent for basic telecom services in Punjab, will make an ECB offering of $350 million (Rs 1,260 crore); Hazira-based refinery, Essar Oil, $330 million (Rs 1,188 crore); the cellular telecom firm, Sterling Cellular, $175 million (Rs 630 crore); group flagship Essar Steel $140 million (Rs 504 crore) and the 515-mw Essar Power $138 million (Rs 500 crore). While the group will seek the government's permission for the Essar Oil, Essar Commvision and Sterling Cellular ECBs soon, Essar Steel and Essar Power offerings have already been cleared. In fact, Bayerische Landische Bank is syndicating $40 million (Rs 144 crore) for Essar Steel. Sources said the two-million tonne capacity steel company would raise the remaining $100 million a few months later.
The financial institutions (FIs) and banks have guaranteed the Essar Power and Essar Steel ECBs. Of the $138 million that Essar Power plans to raise, a sum of $75 million (Rs 270 crore) has been guaranteed by the State Bank of India (SBI). The remaining $63 million (Rs 226 crore) has been guaranteed by the IDBI and the ICICI.
The group, promoted by the Ruias, is negotiating for guarantees for the Essar Oil and Essar Commvision ECBs. Guarantees from FIs or SBI bring down the country risk-perception. This results in a considerably lower interest rate on debt offerings.
Guaranteed ECBs get rates as fine as some 100 basis points over the six-month London inter-bank offered rate (Libor) for dollar loans, which is currently pegged at about 6 per cent.
The Essar Steel and Essar Power ECBs will be offered at an indicative price in this range, the sources said. For instance, the Essar Power ECB will be offered at 120 basis points over Libor.
While the Essar Power ECB will be handled by ANZ Grindlays and ABN Amro banks, the Union Bank of Switzerland has been given the advisory mandate for the Sterling Cellular and Essar Commvision ECBs. The indicative coupon on the Sterling Cellular ECB would be between 170 and 200 basis points over Libor.
The $138-million Essar Power ECB will be primarily used to retire short-term debts of Rs 500 crore raised while putting up the 515-mw power plant. Essar Power was forced to raise short-term bank loans and borrowed heavily from associate companies to set up the project. Of a Rs 1,200-crore short-term loans, the company has already converted Rs 700 crore into long-term loans and the ECB will be used to repay the remaining Rs 500 crore.
In Essar Oil's case, the cost of the nine-million-tonne refinery is Rs 5,300 crore. The company has invested Rs 2,400 crore, including promoters' equity of Rs 600 crore. The $330 million ECB will be used to fund further construction of the refinery. Essar Commvision's $350-million ECB will be used to part-finance the Punjab network, expected to cost Rs 1,000 crore. Similarly, Sterling Cellular, which holds licences in Delhi, Uttar Pradesh (West), Haryana and Rajasthan, will use the $175-million ECB proceeds to set up a network in the four circles.
