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Steel firms plan to pare debt costs via ECBs

Mansi Kapur & George Smith Alexander in Mumbai | October 15, 2003 10:58 IST

Steel companies are looking at swapping their high-cost rupee debt with lower rate foreign loans, resulting in an external commercial borrowings of around $650 million.

The conversion will pare the interest outgo of steel firms by 6-9 per cent.

Jindal Vijaynagar Steel is planning to raise $225 million via an ECB to convert its Rs 1,000 crore (Rs 10 billion) rupee debt. This will bring down the company's interest cost by Rs 100 crore (Rs 1 billion).

"About Rs 1,700 crore (Rs 17 billion) of our rupee debt has a high interest cost of 14 per cent. We are planning to replace this by a foreign loan which will cost about 5 per cent," said Seshagiri Rao, director, finance, Jindal Vijaynagar Steel.

The company currently has about Rs 1,800 crore (Rs 18 billion) in foreign currency loans with an interest outgo of 4-8 per cent.

"We are looking at bringing down the weighted interest payments from the current 9.2 per cent to 8 per cent by the end of this year," Rao said.

Part of the Rs 1,500 crore (Rs 15 billion) of rupee loans has also been slated for conversion into foreign currency loans in the next financial year.

Essar Steel, which has a total debt of around Rs 4,100 crore (Rs 41 billion), is also looking at converting $200 million of its ICICI Bank exposure into ECBs.

"We will able to raise the money at an all-in cost of around 5.5 per cent compared with 11.6 per cent which the company is currently paying. There will be an average reduction in the interest outgo by around Rs 54 crore (Rs 540 million) per year," Essar officials said.

Ispat Industries is also planning to reducing its annual interest outgo by Rs 85 crore (Rs 850 million) after converting about Rs 1,000 crore of its domestic debt (which costs 14 per cent) into ECBs (which cost around 5 per cent).

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