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Essar Steel seeks time from banks on debt pile |
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MUMBAI: Essar Steel is in talks with lenders to restructure its huge debt under the Reserve Bank of India's 5/25 scheme that allows loans to be extended to 25 years and terms to be reset every five years. The company has a debt of Rs 38,000 crore, of which about Rs 15,000 crore has already been covered under the 5/25 scheme. It now wants the balance (excluding Rs 8,000 crore of working capital loan) to be also covered under the same programme which will bring in temporary relief to the troubled steel maker that is on a turnaround path.
Essar Steel is emboldened to settle for this scheme because of its recent accomplishment of gross profit margins improving to 20%. Also, lenders, in the wake of the Kingfisher Airlines debt fiasco, have warned corporate borrowers, especially those who have got easier repayment terms, to improve operational efficiencies if they want more flexibility. Essar Steel's gross profit margins have improved following 70% capacity utilisation at its plants, higher demand for its steel products after the government set a minimum import price to deter foreign players from undercutting local steel mills and lower input costs.
Dilip Oomen, MD & CEO of Essar Steel feels that bad days are behind it and that the company is better placed now than it was earlier. With raw material (gas) prices halving to $6 per unit and better sale price realization, the company will be able to achieve full production, Oomen said.
Even as Essar Steel negotiates the loan restructuring package with banks, the promoters__the Ruia family __is simultaneously exploring a stake-sale in the closely-held company. But the financial woes of the steel sector has impacted valuations. Gross profit margin of steel companies have dropped over 40% as cheap steel imports flooded the market, thereby impairing domestic manufacturers debt-servicing capacity. The Ruias had also considered the sale and leaseback of slurry pipelines and coke oven but that plan failed as the banking regulator barred such transactions.
Essar Steel management believes that the improved gross profit margins plus the equity infusion of Rs 1,500 crore by its promoters will help the company tide over its debt woes.
Source : timesofindia.indiatimes.com
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