The Ruias-owned Essar Steel, which is reeling under a debt burden of R23,500 crore, has asked its board to explore the possibilities of raising up to R3,000 crore via convertible debt instruments from domestic and overseas markets.
The decision to this effect was taken at the company's annual general meeting on October 20, according to the filing with the registrar of companies.
“The company is looking at various alternatives in India and in international markets for long-term fund raising through equity, bond or any other form of hybrid securities to replace its high cost debts,” Essar Steel said in the filing.
“The modalities of such issues are under consideration of the management,” the filing added. “The company is approaching various agencies, investors and financial institutions for the purpose".
In 2011-12, the company completed its expansion of the Hazira steel plant to 10 million tonne per annum. However, the expansion has taken its toll on the company. The company’s interest costs rose 68% to R2,235 crore as the company made a loss of R1,251 crore.
Net sales for the company during the fiscal stood at R16,056 crore.
In total, Essar Steel has invested R37,500 crore at its Hazira plant since 1989. The plant that produced 7 million tonne of flat steel in 2011-12 is expected to reach its full capacity by 2013-14.
“At 10 million tonne capacity, this facility will generate R40,000 crore as revenues,” said Prashant Ruia, group chief executive, Essar Group in January, when the company announced the completion of the expansion process.
The steel maker had earlier planned $500 million to $750 million bond issue in 2010.
However, weakness in the debt market at the time resulted in the bond issue failing to fructify. Apart from raising money via debt instruments, Essar Steel also has the option of raising money via external commercial borrowings or ECB.
Earlier this year, the company got an approval from the Reserve Bank of India to raise $430 million (approx R2,338 crore) via ECBs.
The promoters of the company will also infuse nearly R1,100 crore into the company during the current fiscal to meet ‘capital expenditure and strengthen the capital base of the company’.
At the annual general meeting in 2011, the board of Essar Steel also approved issuing equity shares worth R1,500 crore on a preferential basis to the promoters of the company.