Jindal now seeks to convert FI loans into equity

The conversion of loans into equity or quasi equity would be linked with the recovery of interest on part of the loans to steel prices “as per the recommendations of the consultants.”

It is learnt that “the quantum of each component in the restructuring terms and the effective date of restructuring would be finalised in due course in consultation with financial institutions and all stakeholders.” If FI loans are converted into equity, the company doesn’t need to pay back the principal and interest.

Ispat Alloys had converted part of its loans into equity several years ago at favourable terms and FIs were stuck with dud shares. It is not clear whether FIs are agreeable to the Jindals proposal to convert loans into equity.

Jindal Vijayanagar Steel — which is in the midst of completing its 1.6-million-tonne hot-rolled (HR) coil project in Bellary in Karnataka — is planning to bring down the annual interest burden from Rs 680 crore to reasonable levels.

“The company is negotiating with financial institutions to reduce the interest cost to 13-14 per cent. The other option is to raise debt where interest rates will be lower,” sources said.

The company had earlier borrowed at rates of 18 to 20 per cent to fund the project. It also managed to get a three-year moratorium on payment of loans from the date of completion of the project (March 2001). The interest repayments will start in 2003.

JVSL’s project cost is pegged at Rs 6144 crore of which Rs 1695 crore is equity and Rs 4449 crore is debt. Promoter’s equity is Rs 876 crore. Financial institutions institutions have disbursed over Rs 180 crore recently and only around Rs 60 crore remains to be sanctioned.

After a cost overrun of a huge Rs 2,800 crore in over four years, institutions had last year asked for a viability study to be conducted on the JVSL project. JVSL started out as a 1.25-million tonne hot-roll coil project at Bellary in Karnataka at an estimated cost of Rs 3,300 crore in 1994.

According to FI sources, the company could not tie up the funds a number of times and had to approach the institutions for more money.