Essar default 8212; Burden set to fall on IDBI

This indirectly means that as other banks and lenders are unwilling to finance the FRN repayment, IDBI will have to arrange funds to pay FRN holders and salvage the situation for Essar. It may be recalled that Essar had become the first Indian company todefault on an overseas issue last year.

8220;Failure to meet any part of the funding condition by January 31, 2000 would render the passed resolution FRN holders had last month agreed to waive the default provided Essar satisfied certain conditions null and void and thus the FRN would continue to remain in default,8221; the letter said, adding, 8220;any attempt to waive the default once the passed resolution is declared null and void would require the company to repeat the entire process, beginning with distributing a new restructuring plan and calling for a new meeting.8221;

The three options offered to the bondholders are five-year rollover on an unsecured basis, 10-12 year rollover on a secured basis and re-purchase option via a fixed price tender offer at an all-in price inclusive of any accrued interest of 690 per 1,000 note.

The IDBI board will have to extend over 100 million to finance the cash portion of the FRN default. 8220;Now it8217;s an issue whether we should finance repayment of defaulted principaland interest,8221; said an institutional source, 8220;why should we take a hit for the default of somebody else. We are answerable to our shareholders.8221;

Says the Banc of America letter, 8220;The minimum time requirement to draft a new set of legal documents, allow for the required time to pass to call a formal meeting 21 days, hold the meeting, pass a new extraordinary resolution and then settle a transaction, would be 90 days8230; Noteholders will question the integrity and merits of any renegotiated proposal.8221;As on March 31, 1999, the company8217;s unsecured loan portfolio was pegged at Rs 1,539.60 crore which included the 250 million FRN.

Its secured loan portfolio was pegged at Rs 2,848.27 crore out of which non-convertible debentures accounted for Rs 1,098.67 crore, term loan from banks Rs 370.70 crore and financial institutions Rs 449.59 crore. Besides, commercial banks8217; working capital exposure to the company was to the tune of Rs 727.07 crore. The financial recast plan of the company, prepared by Banc ofAmerica Securities, envisages a seven to eight year holiday on repayment of institutional loans besides a rollover of the 40 million syndicated loan which was due for payment on June 23 after a three-month rollover.

Bayeriscshe Landes Bank is the leader of the nine-bank consortium which raised the syndicated loan.

Besides, it has also approached the banks and institutions for a seven to eight year payment holiday on the term loans. Essar Steel plans to change the average maturity profile of its debt from five years to beyond ten years in accordance with international practice. It also wants to reduce its debt equity ratio and growing interest cost.

The paid up capital of the firm as on March 31, 1999 was Rs 330.35 crore and net worth Rs 1,735.20 crore. It had made a loss of Rs 395 crore in the first nine months of the current year 1999-2000. In fiscal 1999, Essar Steel had posted a net loss of Rs 496.45 crore.

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