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
We deal in over 60 unlisted companies with 15 years of
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