Euro bond redemption to hit many cos

The Euro bond issues of Jindal Strips, Essar Steel, Sterlite and Ballarpur Industries floated in 1993 would be maturing this year as they had a tenure of 5 to 5.5 years. But their repayment is going to be a costly exercise for the companies as well as for the country. When these companies launched the issue five years ago, they had stipulated that these bonds can be converted into equity shares at apre-determined price or redeemed on maturity.

Share prices of many of these companies had crashed since then, making it unattractive for bondholders to convert the bonds into shares. “They would rather opt for redemption of the bonds. This means some of these companies will have to shell out hundreds of crores of rupees to keep up their commitments,” said a banking source. While Essar Steel — which floated a $ 75mn bond issue — had offered a price of Rs 62.21, its share price had fallen to Rs 12.50 per share. Jindal had offered a price of Rs 352 at the time of the launch but now the price has crashed to Rs 41.20. Jindal, which raised $ 60 million, will have to fork out over Rs 70 crore to keep its word to the bondholders. Ballarpur of the Thapar group had offered a price of Rs 275 per share whereas its share price is now only Rs 26.65.

Sterlite which raised $ 100 mn through the bond issue offered to convert the bonds at the rate of Rs 561.07 in 1993. However, its share price has now dipped to Rs166.30. In fact, all these bonds are quoting at a discount to their face value in the overseas market. The only bond issue which commands a premium is the Reliance bond which raised nearly $ 140 million in October 1993. This bond now commands a premium of 15 per cent to the issue price. On top of this, more bond issues are coming up for redemption next year. ICICI ($ 200mn), Ispat Industries ($125 mn) and Tisco ($ 100 mn) will have to redeem their bonds next year (2000).What has hit the companies severely is the steep fall in the rupee’s value against the dollar. The rupee has depreciated by over 33 per cent to 42.44 since 1993. “The repayment cost will shoot up accordingly. Some of these companies — especially in the steel sector — have big projects to be completed and they have approached institutions for fresh loan proposals. Many have even defaulted on their existing commitments to institutions. The big question mark is: will they default on their commitments to foreign investors? How will institutions(which earlier guaranteed their proposals) tackle this situation?” asks an analyst.

Some of these companies are now knocking at the doors of financial institutions to complete their projects. Ispat Industries and Ispat Metallics are asking a bail-out package of Rs 1,500 crore. Essar has sought a Rs 2,532 crore loan package fromFIs. Jindal Vijayanagar, has sought a loan of Rs 492 crore. With even Indian institutions hesitating to sanction fresh loan packages, it is unlikely that they can raise fresh funds from abroad again.