FIs not to refinance Essar FRNs; roll-over likely

Essar is likely to get the nod for roll-over from the overseas FRN holders. Around 75 per cent of the FRN holders are agreeable to the roll-over. This includes $ 60 million holding by various Indian banks and $ 150 million by an overseas investor group which is close to the Ruias. “Once the roll-over is okayed, Essar will get at least three months to make the repayment. A default can also be avoided,” institutional sources said.

The Ruias have already signed an agreement to sell the Essar group’s entire stake in Essar Power, the 515 mw power company, to Marathon Power of US for Rs 720 crore. The deal is expected to be completed by end-August. By virtue of Essar Steel 42 per cent shareholding in Essar Power, the sale will fetch the steel company around Rs 310 crore. The sale of 51 per cent stake in Essar Minerals to Stemcor of US is likely to fetch another Rs 180 crore.

Essar Steel had earlier submitted a exposure-neutral proposal to the financial institutions, seeking a Rs 1075 crore loan to redeem its entire FRN outstanding following its failure to secure an export performance guarantee from the State Bank of India. It has also proposed a rights issue for raising around Rs 300 crore.

The total FI exposure to the Essar group now works out to around Rs 8,000 crore. Apart from selling off the power company, the Essar group is also planning to hive off Essar Oil into a joint venture with Bharat Petroleum Corporation.

Out of the total FI exposure, ICICI has an exposure of Rs 2450 crore, accounting for nearly 27 per cent of its net worth. IDBI has an exposure of Rs 2350 crore accounting for 27 per cent of its net worth. As per the current guidelines, an institution cannot lend more than 50 per of its net worth to any industrial group. But IFCI is believed to have given 54 per cent of its networth as loans to the Essar group.