MUMBAI, OCT 4: Beleaguered Essar Steel Ltd has outlined its proposals to its lenders including a 12-year roll-over and an exit option at a discount for its $ 250 million floating rate notes (FRNs) which it failed to redeem on July 20, 1999. The company was the first Indian company which defaulted on its foreign loans and hired Banc of America Securities LLC to advise a strategy to tide over the crisis.In a statement, Essar Steel said the options for FRN holders are: an extension of the maturity of the loan by another 12 years on par with secured investors, or an extension of five years during which the notes will continue to be unsecured and, finally, an exit option at a discount for which the price is yet to be negotiated. The options will be discussed with FRN holders at a meeting on October 20 in London, it said.Essar said it also planned to seek restructuring of its debt with other unsecured creditors as well as secured creditors. "The company proposes to request the secured creditors includingdomestic financial institutions and banks to extend the maturity profile so as to be in line with the maturity profile of other steel companies which is about eight years," it said."The company proposes to seek extension of the maturity period from external commercial borrowings lenders, Banc of America and Union Bank of Switzerland, who have provided export advance to the company."Essar said in July its total debt from financial institutions, banks and ECBs was Rs 4,400 crore while its net worth was Rs 2,100 crore and its assets exceeded Rs 7,000 crore. The firm had raised the FRNs in 1994 to fund its two million tonne per annum steel plant project at Hazira in Gujarat.Essar said it intended to refinance the FRNs but blamed international economic sanctions in the aftermath of India's nuclear tests which derailed its plans and forced it to approach domestic financial institutions (FIs) for refinancing. FIs decided against increasing their exposure to the loss-making company and asked Essar to seek arollover of the debt.The company said with the proposed hiving off of its pellet business into a joint venture, the debt of the company will reduce by Rs 633 crore. It said it also planned to raise additional equity of Rs 330 crore through a rights issue. "All these above measures are expected to result in a better debt-equity ratio, improved cash flow and average maturity profile of eight years which is in line with international financing norms for large integrated steel projects," Essar said.When contacted, Essar Steel's FRN holders said that they will take the company to court in United Kingdom instead of selling their FRNs at a discount. If possible, the FRN holders will seek selling off the assets of promoters and the company to get back their dues.
