Essar Steel seeks loan recast under CDR scheme

Debt-ridden Essar Steel, in its proposal to the joint lenders forum (JLF), has proposed a corporate debt restructuring (CDR), and not a debt recast under the 5/25 scheme, wherein it has asked for its loan to be split into two parts, equity infusion and conversion of portion of the working capital facilities into work capital term loan (WCTL), among other things, said a source, who spoke to dna on condition of anonymity.

Since Ruias-owned company's part of loan account has already been classified as non-performing asset (NPA), a revamp under the CDR package would provide it easier repayment terms.

According to the source, who did not want to be named, Essar Steel is looking for its debt, which is said to be close to Rs38,000 crore, to be divided into two parts.

He said as per the restructuring scheme submitted to the banks, the steel major has proposed that one part of the loan would have interest rate at 1% over State Bank of India (SBI) base rate that could be repaid over 20 years.
The proposal has asked for the remaining debt, yield and amortisation to be fixed on the basis of the total enterprise value (TEV).

It also includes Rs 4,350-crore equity infusion from promoters, of which Rs 1,500 crore would come through fresh equity and Rs 2,850 crore by converting inter-corporate deposits (ICDs) into equity.

Interestingly, the Gujarat-based steel company has also asked for funding of interest on long term debt for two years. It has said it will service its working capital interest from operations.

The source said the company also wanted to the banks to convert a portion of the working capital facilities into working capital term loan (WCTL). It is not looking for fresh working capital funding.

"The most interesting thing about Essar restructuring plan is that it has not sought disbursement of working capital that has already been sanctioned," the source told dna.

He added, in its meeting with banks, the company management emphasised on the fact that despite extremely adverse market conditions, Essar Steel had paid over Rs20,000 crore to the banking system over the last five years.

A senior bank official on condition of anonymity informed that the JLF at any point would not coerce steel companies to resort to "fire sale" by offloading equity to pay off debts, "Instead we want companies to raise fresh equity to retire their debt," he said.

Essar group has been trying hard to prune its debts in recent times. The group is considering a 74% stake sale in its flagship oil business. The deal will take 40% debt off the books of Essar group, which makes it one the biggest deleveraging exercises in India.

In response to email queries sent by dna to Essar Steel, its spokesperson wrote back; "We have proposed a restructuring plan to our lenders. We cannot share any further details at this point of time".

Meanwhile, a senior official with one of the banks in the lenders' consortium, said; "We have received the proposal and it is being discussed".

In recent times, RBI governor Raghuram Rajan has aggressively advocated to differentiate between wilful defaulters and defaults that have occurred due to macroeconomic conditions.

Of the existing steel facilities, Tata Steel, Essar Steel and JSW Steel are among the largest borrowers from nationalised banks. While Tatas owe Rs 33,000 per tonne to banks, Essar and JSW owe Rs 30,000 and Rs 28,000 respectively. Analysts say that banks look more vulnerable in terms of new plans because the borrowings are substantially higher on account of high input costs. Among the new facilities, JSPL bank borrowings stand at Rs 61,000 per tonne and Tata Kalinganagar at Rs 50,000 per tonne.