The delay in the disbursement of the $191 million term loan by the Bank of Nova Scotia Asia to Essar Shipping has prompted the company to raise a bridge loan of Rs 70 crore at an interest rate 3.5 per cent higher than the minimum lending rate from the Life Insurance Corporation of India to tide over its cash flow problem.
The draw-down on the term loan, which was supposed to commence from April this year, has been delayed due to various administrative reasons like the due-diligence involved. Essar Shipping is therefore raising a bridge loan to pay back the debentures of various institutions including the Unit Trust of India (UTI) and the Life Insurance Corporation (LIC) which are scheduled for payment.
The grant of the Rs 70 crore bridge loan, which was decided by the investment committee of the LIC during a meeting held a few days ago, was against the $191 million term loan
An Essar Shipping spokesperson said: "The delay in the draw down on the term loan has been due to reasons relating to the paper work involved. Though some of the draw down has started, the bulk term loan is yet to be disbursed.
Meanwhile, some debentures of institutions need to be repaid for which a bridge loan is being raised."
The proceeds from the term loan would replace the costly debts raised from domestic sources with cheaper ones from abroad. This is expected to bring down the average cost of debt to 7.5 per cent.
"Despite the prevailing currency crisis in south-east Asia and the adverse India rating, the company has been able to obtain the facility at a competitive floating rate of 1.375 per cent over Libor with an option to convert into fixed rate," the spokesperson added.
The conversion of costly domestic debts into cheaper ones is expected to result in an interest savings of about 20 per cent for the company. Essar Shipping had paid Rs 96 crore in interest alone during 1996-97.
Infact, the debt maturity profile of the company has been extended from five to nine years in order to match the earnings capability of its current shipping assets.
The term loan facility had been underwritten by Nedship merchant Bank(Asia) and Skandinaviska Enskilda Banken, apart from The Bank of Nova Scotia.
The other members of the lending group consists of MessPierson N V Singapore branch, Landesbank Schleswig-Holstein, Christiania Bank.
