Essar Steel has requested banks to convert Rs 12,200 crore of loans into equity — Rs 9,000 crore into preference shares redeemable after 12-18 years and RS 3,200 crore into common equity, a senior company executive told FE. As part of the restructuring proposal, the promoters will bring in Rs 1,500 crore as additional equity, he added.
Lenders to Essar Steel are expected to meet on Wednesday to discuss the company’s proposal. The plan, if accepted by banks, will reduce the Ruias-promoted steelmaker’s debt to Rs 27,900 crore. The company has also sought the conversion of Rs 6,000 crore of working capital loans into a term loan. Moreover, it has asked for an additional term loan of Rs 1,900 crore to acquire Odisha Slurry Pipeline Infrastructure. The company is understood to have told lenders that with the rise in steel prices it would be able to service a substantial portion of its debt.
Essar Steel wants to repay the principal in 20 years and is seeking an interest rate of 9.8% for the next three years and thereafter reset the rate following changes in interest rates.
In July, FE had reported that lenders were exploring the possibility of restructuring Rs 31,000 crore worth of the company’s loans under RBI’s Scheme for Sustainable Structuring of Stressed Assets (S4A) norms.
Sources added Essar’s lenders appointed MECON, a government-run engineering and steel sector consulting company, to conduct a techno-feasibility study into Essar’s operations, based on which the lenders will take a final call. Significantly, the appointment of MECON in April was a parallel process initiated by Essar’s lenders even as they were looking for potential buyers for a majority stake in Essar Steel.
The company reported gross revenues of Rs 4,482 crore in the June quarter of FY17, a 12% increase over the previous quarter. Production of flat steel was 1.22 million tonnes, up 48% compared with the same period last year. Announcing its Q1FY17 results, the company said that by the end of FY17, it expects to record a marked increase in capacity utilisation, and produce 80% of its rated capacity.