Essar Steel, which was to sell assets worth Rs 11,200 crore by March-end to retire its debt, will miss the deadline following a Reserve Bank of India (RBI) directive to ban sale and leaseback of assets.

The sale of assets by Essar Steel excluded the sale of a strategic stake in the company by the promoters and the sale of a 49% stake in the Essar Oil refinery.

Essar Steel was planning to sell and leaseback its slurry pipelines and coke oven in 2015-16 to reduce its debt of Rs 30,500 crore ahead of a deadline set by lenders.  “The RBI recently issued guidelines governing sale and leaseback transactions by corporates which effectively restricts corporates from undertaking monetisation of assets through this mechanism. The company is, therefore, evaluating alternatives to achieve the reduction of liability,” an Essar Steel spokesperson said.

In November, the Ruias had hired SBI Caps and ICICI Securities to sell a stake in the company itself. Another option now under discussions is that the promoters will infuse more money into the company as valuations improve. And that's because the steel sector is witnessing a major turnaround in its fortunes in the last two months. The minimum import price has resulted in dumping from China stopping and giving a boost to demand from local companies. The steel price for hot rolled coil itself has shot up to $350 a tonne from $270 a tonne and Essar's plant is now sourcing imported gas which is available for $6 a unit. "All this will result in better profitability for the company," said a source.

In February, the Essar group had sold real estate in the Bandra Kurla Complex for Rs 2,400 crore to RMZ and leased it back.

The Group was also asked by Standard Chartered Bank to repay loans worth $2.5 billion by March and the Ruias immediately announced the sale of a 49% stake in Essar Oil to Rosneft in an all-cash deal worth $2.8 billion. The Rosneft deal is imminent and will be the next transaction the group closes by next quarter.

Essar Steel is not alone in selling assets to retire debt. Many Indian companies, including the Jaypee group, Reliance Infrastructure and the Avantha group, have sold assets or are in the process of selling them in the current fiscal year.  The debt of these companies has ballooned as they went on an expansion spree in the last few years. With demand not picking up, these companies were unable to repay loans.  

Essar Steel has also availed of the Reserve Bank of India’s 5/25 scheme under which the banks extended its loans by another 25 years with an option of refinancing every five years.

The company has a 10 million tonne steel manufacturing facility at Hazira and iron ore beneficiation and pelletisation facilities in Paradeep of 12 million tonnes and Visakhapatnam of 8 million tonnes. The company also owns and operates two iron ore slurry pipelines – one each in Odisha (Dabuna to Paradip) and Andhra Pradesh (Kirandul-Visakhapatnam).  These pipelines transport iron ore slurry from iron ore mines in Dabuna and Kirandul to the pellet plants located near the Paradip and Visakhapatnam  ports.  

The company has already sold off one of its slurry pipeline and the coke oven to reduce its debt.  

In an earlier interview with this paper, Essar Steel had blamed falling steel prices, lack of gas supply from the Krishna-Godavari basin, and damage to its Kirandul-Visakhapatnam slurry pipeline by Naxals in October 2011 for its reversal of fortunes. The lack of gas supply brought down the capacity of the company's Hazira plant to 40% and caused a Rs 4,500 crore hit on Essar Steel's finances.  Besides, delays in receiving environmental clearance for the company's second slurry pipeline in Odisha resulted in non-availability of pellets for the ramp-up of the Hazira steel plant and had an impact of another Rs 2,500 crore on the company.

Interestingly, while Essar Steel is selling assets, the company has emerged as the top bidder for an iron ore mine in Odisha, piping JSW, Tata Steel and JSPL. This mine will take care of half of its raw material needs. The company bid by offering 43% royalty to the government — far higher than competition.

 

Source : business-standard.com

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Essar Steel, which was to sell assets worth Rs 11,200 crore by March-end to retire its debt, will miss the deadline following a Reserve Bank of India (RBI) directive to ban sale and leaseback of assets.

The sale of assets by Essar Steel excluded the sale of a strategic stake in the company by the promoters and the sale of a 49% stake in the Essar Oil refinery.

Essar Steel was planning to sell and leaseback its slurry pipelines and coke oven in 2015-16 to reduce its debt of Rs 30,500 crore ahead of a deadline set by lenders.  “The RBI recently issued guidelines governing sale and leaseback transactions by corporates which effectively restricts corporates from undertaking monetisation of assets through this mechanism. The company is, therefore, evaluating alternatives to achieve the reduction of liability,” an Essar Steel spokesperson said.

In November, the Ruias had hired SBI Caps and ICICI Securities to sell a stake in the company itself. Another option now under discussions is that the promoters will infuse more money into the company as valuations improve. And that's because the steel sector is witnessing a major turnaround in its fortunes in the last two months. The minimum import price has resulted in dumping from China stopping and giving a boost to demand from local companies. The steel price for hot rolled coil itself has shot up to $350 a tonne from $270 a tonne and Essar's plant is now sourcing imported gas which is available for $6 a unit. "All this will result in better profitability for the company," said a source.

In February, the Essar group had sold real estate in the Bandra Kurla Complex for Rs 2,400 crore to RMZ and leased it back.

The Group was also asked by Standard Chartered Bank to repay loans worth $2.5 billion by March and the Ruias immediately announced the sale of a 49% stake in Essar Oil to Rosneft in an all-cash deal worth $2.8 billion. The Rosneft deal is imminent and will be the next transaction the group closes by next quarter.

Essar Steel is not alone in selling assets to retire debt. Many Indian companies, including the Jaypee group, Reliance Infrastructure and the Avantha group, have sold assets or are in the process of selling them in the current fiscal year.  The debt of these companies has ballooned as they went on an expansion spree in the last few years. With demand not picking up, these companies were unable to repay loans.  

Essar Steel has also availed of the Reserve Bank of India’s 5/25 scheme under which the banks extended its loans by another 25 years with an option of refinancing every five years.

The company has a 10 million tonne steel manufacturing facility at Hazira and iron ore beneficiation and pelletisation facilities in Paradeep of 12 million tonnes and Visakhapatnam of 8 million tonnes. The company also owns and operates two iron ore slurry pipelines – one each in Odisha (Dabuna to Paradip) and Andhra Pradesh (Kirandul-Visakhapatnam).  These pipelines transport iron ore slurry from iron ore mines in Dabuna and Kirandul to the pellet plants located near the Paradip and Visakhapatnam  ports.  

The company has already sold off one of its slurry pipeline and the coke oven to reduce its debt.  

In an earlier interview with this paper, Essar Steel had blamed falling steel prices, lack of gas supply from the Krishna-Godavari basin, and damage to its Kirandul-Visakhapatnam slurry pipeline by Naxals in October 2011 for its reversal of fortunes. The lack of gas supply brought down the capacity of the company's Hazira plant to 40% and caused a Rs 4,500 crore hit on Essar Steel's finances.  Besides, delays in receiving environmental clearance for the company's second slurry pipeline in Odisha resulted in non-availability of pellets for the ramp-up of the Hazira steel plant and had an impact of another Rs 2,500 crore on the company.

Interestingly, while Essar Steel is selling assets, the company has emerged as the top bidder for an iron ore mine in Odisha, piping JSW, Tata Steel and JSPL. This mine will take care of half of its raw material needs. The company bid by offering 43% royalty to the government — far higher than competition.

 

Source : business-standard.com

Report Abuse