Essar Steel is all set to come out of the purview of the corporate debt restructuring (CDR) cell of the financial institutions by pre-paying its creditors.
This is significant as an exit from the CDR cell would free the company from having to secure the nod of its creditors for implementing an acquisition or expansion plan. The Sajjan Jindal-controlled JSW Steel came out of the CDR cell a month ago.
When contacted, an Essar Steel spokesperson said the company has so far paid Rs 1,500 crore (Rs 15 billion) out of its total outstanding of Rs 2,500 crore (Rs 25 billion) to the CDR cell.
"We hope to pay the remaining part soon and to come out of the CDR net." He said the company paid back its creditors through internal accruals as well as refinancing of its old debts. The refinancing has been done at an average 8 per cent interest rate.
Confirming the development, a banking source said, "For all practical purposes, Essar Steel is out of CDR. A formal announcement is expected in a short while." The source said Essar Oil, the oil marketing outfit of the group, continues to be under the CDR cell.
In addition to steel and oil, the Rs 20,000 crore (Rs 200 billion) group is into shipping and telecom business. The State Bank of India has recently increased its exposure to Essar Oil. An industry source said Essar Steel has received sanction letters from banks to mobilise nearly Rs 250 crore (Rs 2.50 billion).
The firm would utilise the amount to pay off its creditors. The list of banks associated with the company include Punjab National Bank, Bank of India, Allahabad Bank, Indian Bank, Exim Bank, State Bank of India (SBI) and SBI associates -- State Bank of Patiala, State Bank of Mysore, State Bank of Saurashtra.
Industry sources said an exit from the CDR net means the group would enjoy a lot of freedom to run the company. For example, any proceeds of a CDR company has to go through trust and retention account, being monitored by a representative of the CDR cell.
Essar Steel is in the midst of big expansion plans. It has recently acquired Stemcor of the UK from two companies - Hy-Grade Pellets and Steel Corporation of India -- for $450 million (nearly Rs 2,000 crore). It is believed to be in talks with South Korean giant Posco to acquire a steel mill at Kwangyang.
