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    Alter the terms of debt agreement to get advantage by: Extending the tenure of loan. Reducing the rate of interest. Recasting the company’s debt to relieve the stress in their asset books if 75% lenders agreed to do so. Lenders compromise the interest rate and extend the maturity profile of debt. Borrowers sacrifices in terms of converting part of their debt money into equities, offering high laterals and pumping fresh money. It extended the firms loan terms, waived certain penalty interest and liquidated damages, reduced certain interest charges and converted some loans into equity. Included approval for additional borrowings to pay unsecured international debts. By this it settled the debts of FRN holders with 76% discount rate. Did settlement of secured term loans amounting to Rs 123 crore with few Indian banks and FI’s and settled the loan at Rs 86 crore, saving around Rs 37 crore. The package reduced interest costs to approximately 11.6%, with interest rates fixed at 14% for rupee term loans and 8% for foreign currency loans. By March 2003, over Rs. 42000 crore of stress assets were recast. In 1989, Essar managed to finance with a 7 year repayment period from IDBI,ICICI,UTIIFCI & LIC to set up a steel plant at Hazira In 2000 Company decided to implement various programmes to increase plant avaibility & utilization. In 2001 Essar took a financial reengineering to avoid repeated liquidity crisis, improve interest coverage, debt service coverage& structure repayment terms to ensure uninterrupted operation On request of Essar ,maturity period of FRN(raised in 1994) increased to another 5 years & domestic loan repayment period upto 8 years with a reduced interest rate of 14%. In mid 2004,Company launched a hot rolled dual phase steel project to capture the niche market of auto components. Signed a deal with Delphi automotive system to supply new grade steel based components. In order to overcome the crisis in 2002, Essar opted for CDR in which company had the option to pay the settlement in one go with a discount rate or convert debt to Rupee & extend the due date to 2017. In 2003, Essar decided to convert part of its loans to preference shares & the rest rescheduled to repaid over the next 15 years. In 2004, Essar initiated online sales of prima steel via website” clickforsteel.com”. Essar utilized the full capacity of Hazira plant which resulted in increased production from 1.93mtpa to 2.4mtpa. The earlier debt that was scattered in Essar Steel Hazira Ltd, Essar Steel Orissa Ltd, Hazira Plate Ltd and Hazira Pipe Mill Ltd in 2010 all got consolidated into the books of Essar Steel Ltd (ESL). Essar Steel Ltd will have a consolidated debt on the books of Rs 17,300 crore Essar Steel got itself valued from an independent bank recently which pegged it at $9 billion, or Rs 49,500 crore. In october 2002 it had total debt of2800 crores with interest of 600 crores As on Dec 1 2012, Essar Steel, has a total debt burden of R23,500 crore and exploring the possibilities of raising up to R3,000 crore via convertible debt instruments from domestic and overseas markets. In January 2005, it acquired its JV to become integrated steel plant In April 2005 company improved its production technology such as introducing of DR grade pallets, LNG, replaced naptha as feed stock.

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    Alter the terms of debt agreement to get advantage by: Extending the tenure of loan. Reducing the rate of interest. Recasting the company’s debt to relieve the stress in their asset books if 75% lenders agreed to do so. Lenders compromise the interest rate and extend the maturity profile of debt. Borrowers sacrifices in terms of converting part of their debt money into equities, offering high laterals and pumping fresh money. It extended the firms loan terms, waived certain penalty interest and liquidated damages, reduced certain interest charges and converted some loans into equity. Included approval for additional borrowings to pay unsecured international debts. By this it settled the debts of FRN holders with 76% discount rate. Did settlement of secured term loans amounting to Rs 123 crore with few Indian banks and FI’s and settled the loan at Rs 86 crore, saving around Rs 37 crore. The package reduced interest costs to approximately 11.6%, with interest rates fixed at 14% for rupee term loans and 8% for foreign currency loans. By March 2003, over Rs. 42000 crore of stress assets were recast. In 1989, Essar managed to finance with a 7 year repayment period from IDBI,ICICI,UTIIFCI & LIC to set up a steel plant at Hazira In 2000 Company decided to implement various programmes to increase plant avaibility & utilization. In 2001 Essar took a financial reengineering to avoid repeated liquidity crisis, improve interest coverage, debt service coverage& structure repayment terms to ensure uninterrupted operation On request of Essar ,maturity period of FRN(raised in 1994) increased to another 5 years & domestic loan repayment period upto 8 years with a reduced interest rate of 14%. In mid 2004,Company launched a hot rolled dual phase steel project to capture the niche market of auto components. Signed a deal with Delphi automotive system to supply new grade steel based components. In order to overcome the crisis in 2002, Essar opted for CDR in which company had the option to pay the settlement in one go with a discount rate or convert debt to Rupee & extend the due date to 2017. In 2003, Essar decided to convert part of its loans to preference shares & the rest rescheduled to repaid over the next 15 years. In 2004, Essar initiated online sales of prima steel via website” clickforsteel.com”. Essar utilized the full capacity of Hazira plant which resulted in increased production from 1.93mtpa to 2.4mtpa. The earlier debt that was scattered in Essar Steel Hazira Ltd, Essar Steel Orissa Ltd, Hazira Plate Ltd and Hazira Pipe Mill Ltd in 2010 all got consolidated into the books of Essar Steel Ltd (ESL). Essar Steel Ltd will have a consolidated debt on the books of Rs 17,300 crore Essar Steel got itself valued from an independent bank recently which pegged it at $9 billion, or Rs 49,500 crore. In october 2002 it had total debt of2800 crores with interest of 600 crores As on Dec 1 2012, Essar Steel, has a total debt burden of R23,500 crore and exploring the possibilities of raising up to R3,000 crore via convertible debt instruments from domestic and overseas markets. In January 2005, it acquired its JV to become integrated steel plant In April 2005 company improved its production technology such as introducing of DR grade pallets, LNG, replaced naptha as feed stock.

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    39 views12 pages

    Financial Re-Engineering at Essar Steel

    Uploaded by

    vivekimtex_793775611
    Alter the terms of debt agreement to get advantage by: Extending the tenure of loan. Reducing the rate of interest. Recasting the company’s debt to relieve the stress in their asset books if 75% lenders agreed to do so. Lenders compromise the interest rate and extend the maturity profile of debt. Borrowers sacrifices in terms of converting part of their debt money into equities, offering high laterals and pumping fresh money. It extended the firms loan terms, waived certain penalty interest and liquidated damages, reduced certain interest charges and converted some loans into equity. Included approval for additional borrowings to pay unsecured international debts. By this it settled the debts of FRN holders with 76% discount rate. Did settlement of secured term loans amounting to Rs 123 crore with few Indian banks and FI’s and settled the loan at Rs 86 crore, saving around Rs 37 crore. The package reduced interest costs to approximately 11.6%, with interest rates fixed at 14% for rupee term loans and 8% for foreign currency loans. By March 2003, over Rs. 42000 crore of stress assets were recast. In 1989, Essar managed to finance with a 7 year repayment period from IDBI,ICICI,UTIIFCI & LIC to set up a steel plant at Hazira In 2000 Company decided to implement various programmes to increase plant avaibility & utilization. In 2001 Essar took a financial reengineering to avoid repeated liquidity crisis, improve interest coverage, debt service coverage& structure repayment terms to ensure uninterrupted operation On request of Essar ,maturity period of FRN(raised in 1994) increased to another 5 years & domestic loan repayment period upto 8 years with a reduced interest rate of 14%. In mid 2004,Company launched a hot rolled dual phase steel project to capture the niche market of auto components. Signed a deal with Delphi automotive system to supply new grade steel based components. In order to overcome the crisis in 2002, Essar opted for CDR in which company had the option to pay the settlement in one go with a discount rate or convert debt to Rupee & extend the due date to 2017. In 2003, Essar decided to convert part of its loans to preference shares & the rest rescheduled to repaid over the next 15 years. In 2004, Essar initiated online sales of prima steel via website” clickforsteel.com”. Essar utilized the full capacity of Hazira plant which resulted in increased production from 1.93mtpa to 2.4mtpa. The earlier debt that was scattered in Essar Steel Hazira Ltd, Essar Steel Orissa Ltd, Hazira Plate Ltd and Hazira Pipe Mill Ltd in 2010 all got consolidated into the books of Essar Steel Ltd (ESL). Essar Steel Ltd will have a consolidated debt on the books of Rs 17,300 crore Essar Steel got itself valued from an independent bank recently which pegged it at $9 billion, or Rs 49,500 crore. In october 2002 it had total debt of2800 crores with interest of 600 crores As on Dec 1 2012, Essar Steel, has a total debt burden of R23,500 crore and exploring the possibilities of raising up to R3,000 crore via convertible debt instruments from domestic and overseas markets. In January 2005, it acquired its JV to become integrated steel plant In April 2005 company improved its production technology such as introducing of DR grade pallets, LNG, replaced naptha as feed stock.

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    Financial Re-engineering at Essar Steel

    Presented by: 1. Himanshu Shekhar- 12EX-021 2. Piyush Dwivedi- 12EX-033 3. Srikant Sukumar- 12EX-049 4. Vivek Kumar- 12EX-056

    Essar Group- An Introduction


    Companies Essar Shipping Details Started operations in 1969, operated a fleet of 50 vessels and is the second largest company in the industry. 3 divisions: bulk carriers, tankers and off shore supply vessels. Established to meet Essar steel requirements. Eventually expanded to give power to Gujrat government (60% of plant generated power). Established in 1989. One of the leading players in oil industry. Entered in telecom business in 1990s by acquiring sterling Cellular (Delhi). Leading cellular service provider in India in early 21st century. Flagship company of Essar group. Established in 1976. Largest sponge iron producer in the country in early 21st century.

    Essar Power

    Essar Oil Essar Telecom

    Essar Steel

    Essar Steels Financial Problems


    1989 : Financing problem for new plant. Long term funds for capital-intensive projects difficult. Foreign investors not permitted. Raised funds with seven year repayment from Indian financial institutions. Delays let to cost overruns of Rs 4400 Cr. Floating rate notes(FRNs) issued to raise money from other countries.

    Essar Steels Financial Problems


    1990 : Simultaneous launch of several projects plus mismanagement of funds. 1998 : Economy declined. So did Essar groups profit. Steel Prices came down. Debt Equity ratio of 2.12. 1999: Could not meet payments for the FRNs.

    Corporate Debt Restructuring (CDR) scheme


    Alter the terms of debt agreement to get advantage by: Extending the tenure of loan. Reducing the rate of interest. Recasting the companys debt to relieve the stress in their asset books if 75% lenders agreed to do so. Lenders compromise the interest rate and extend the maturity profile of debt. Borrowers sacrifices in terms of converting part of their debt money into equities, offering high laterals and pumping fresh money.

    Results of CDR Scheme


    It extended the firms loan terms, waived certain penalty interest and liquidated damages, reduced certain interest charges and converted some loans into equity. Included approval for additional borrowings to pay unsecured international debts. By this it settled the debts of FRN holders with 76% discount rate. Did settlement of secured term loans amounting to Rs 123 crore with few Indian banks and FIs and settled the loan at Rs 86 crore, saving around Rs 37 crore. The package reduced interest costs to approximately 11.6%, with interest rates fixed at 14% for rupee term loans and 8% for foreign currency loans. By March 2003, over Rs. 42000 crore of stress assets were recast.

    Financial help & operation strategy:


    In 1989, Essar managed to finance with a 7 year repayment period from IDBI,ICICI,UTIIFCI & LIC to set up a steel plant at Hazira In 2000 Company decided to implement various programmes to increase plant avaibility & utilization.

    In 2001 Essar took a financial reengineering to avoid repeated liquidity crisis, improve interest coverage, debt service coverage& structure repayment terms to ensure uninterrupted operation
    On request of Essar ,maturity period of FRN(raised in 1994) increased to another 5 years & domestic loan repayment period upto 8 years with a reduced interest rate of 14%

    In mid 2004,Company launched a hot rolled dual phase steel project to capture the niche market of auto components.

    Signed a deal with Delphi automotive system to supply new grade steel based components.
    In order to overcome the crisis in 2002, Essar opted for CDR in which company had the option to pay the settlement in one go with a discount rate or convert debt to Rupee & extend the due date to 2017. In 2003, Essar decided to convert part of its loans to preference shares & the rest rescheduled to repaid over the next 15 years.

    In 2004, Essar initiated online sales of prima steel via website clickforsteel.com.

    Essar utilized the full capacity of Hazira plant increased production from 1.93mtpa to 2.4mtpa

    which resulted in

    In January 2005, it acquired its JV to become integrated steel plant In April 2005 company improved its production technology such as introducing of DR grade pallets, LNG, replaced naptha as feed stock.

    Road ahead
    The earlier debt that was scattered in Essar Steel Hazira Ltd, Essar Steel Orissa Ltd, Hazira Plate Ltd and Hazira Pipe Mill Ltd in 2010 all got consolidated into the books of Essar Steel Ltd (ESL). Essar Steel Ltd will have a consolidated debt on the books of Rs 17,300 crore Essar Steel got itself valued from an independent bank recently which pegged it at $9 billion, or Rs 49,500 crore. In october 2002 it had total debt of2800 crores with interest of 600 crores As on Dec 1 2012, Essar Steel, has a total debt burden of R23,500 crore and exploring the possibilities of raising up to R3,000 crore via convertible debt instruments from domestic and overseas markets.

    Debt Equity Ratio


    Essar Steel
    Mar 03 12.2 Mar 04 7.99 Mar 05 4.47 Mar 06 5.59 Mar 07 1.70 Mar 08 1.34 Mar 09 1.47 Mar 10 1.86 Mar 11 2.18 Mar 12 2.95

    Jindal Steel
    Mar08 1.03 Mar09 0.92 Mar10 1.24 Mar11 1.39 Mar12 1.33

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