Essar drops plan to launch 130 mn issue

MUMBAI, June 14: Bealeagured Essar Steel of the Ruias has decided to let the permission of the Government of India for its 130 million ...

MUMBAI, June 14: Bealeagured Essar Steel of the Ruias has decided to let the permission of the Government of India for its 130 million bond issue to lapse 8211; the approval for which was granted by the Union Cabinet last week. The issue was originally intended to raise funds for its pellet plant in Vizag which is now on the sell-off list of the company.

Sources say that the company is busy negotiating a roll over for its 250 million FRN issue which comes up for redemption on July 13, hence yet another issue is not on the cards. The Indian financial institutions, led by IDBI, is currently drawing up a plan to bail out the company by buying its FRN issue at a 30-40 per cent discount to its listed price.

The application for its 130 million international bond issue was made a year back but due to 8220;changed circumstances8221;, the company will let the government permission lapse. The company is currently in talks with NMDC to sell a part of its equity in the Vizag pellet plant. 8220;A due diligence study by NMDC is currently on and a decision on sell off will be taken after that,8221; company officials said. 8220;If at a later stage, Essar Minerals, decided to launch the issue, it can revive the government permission,8221; he said.

Company officials, however, deny that they have begun negotiations with the FRN investors for additional interest payments in lieu of a rollover. One of the conditions made by the FIs while releasing its bail out package for Essar Steel was to sell off its Vizag plant and its stake in Essar Power. 8220;Therefore, all new fund raising plans are in back burner,8221; officials add.

The financial restructuring of the company, necessitated by FI dictate, has made the company to freeze all expansions and fund raising plans. Institutional sources say that they are in two minds to take a fresh exposure in the group as they already hit their ceiling of exposure in the company.

In case the institutions agree to bail out the company by buying out the FRN issue from the market, they would require a finance ministry clearance to do so. Going by the existing norms, institutions are allowed to buy back their own bonds but for other corporates, they need special permission from the MoF.

The Luxembourg-listed FRN of Essar Steel has been quoting at a heavily discounted price against a face value of 100 on fears of a default for quite some time. The company is also in talks with various power companies including Enron Corporation to sell off its 550 mw power project near its steel plant in Hazira.