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Essar gets cheaper Dollar credit


Essar Group first Indian corporate to get nod for refinancing expensive rupee loans with cheaper dollar credit
 The $27-billion, steel-to-software Essar Group is the first Indian corporate to receive the go-ahead from the ReserveBank of India (RBI) for refinancing expensive rupee loans with cheaper dollar credit.
The central bank has approved group flagships Essar Steeland Essar Oil to get external commercial borrowings of $430 million and $1.5 billion, respectively. Sources said Essar Oil is eligible for a further refinancing of $750 million.

The $27-billion, steel-to-software Essar Group is the first Indian corporate to receive the go-ahead from the ReserveBank of India (RBI) for refinancing expensive rupee loans with cheaper dollar credit.
The central bank has approved group flagships Essar Steeland Essar Oil to get external commercial borrowings of $430 million and $1.5 billion, respectively. Sources said Essar Oil is eligible for a further refinancing of $750 million.
In June this year, RBI allowed Indian corporates to avail of cheaper dollar loans and repay rupee loans taken for capital expenditure. This was, however, meant only for infrastructure and manufacturing companies with consistent foreign exchange earnings in the past three years.
The overall limit for such ECBs was capped at $10 billion for all Indian corporates. For a single company, the ECB eligibility has been fixed at 75% of the past three years' average exports or 50% of the highest foreign exchange earnings realised in any of the immediate past three years, whichever is higher. Earlier, the permissible limit was 50% of previous three years' average.
Essar Group entities are negotiating with a consortium of Indian lenders to facilitate this move and prepay their high-cost debt.
Even though most of its earnings for steel and oil are dollar-linked, the liabilities have been in Indian rupees. The refinancing opportunity will allow the group to restructure high-cost debt.
Indeed, the two companies would save around Rs 800 crore a year. As against an interest charge of 12-13% on rupee loans, forex loans cost a mark-up of 4.5-5 percentage points above the London Inter-Bank Offered Rate (Libor).
With the six-monthly Libor prevailing at 0.5%, the saving works out to as much as 6%.
Loan interest rates are typically reset every six months.


Sandip Ginodia
ABHISHEK SECURITIES

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