Jindal Vijaynagar Steel, Essar Steel and Ispat Industries, whose debts were recently recast in line with the guidelines on corporate debt restructuring, are planning to refinance a substantial portion of their debt. JVSL has started prepaying a part of its debt out of internal accruals.
The lenders, banks and financial institutions, are not complaining either.
"These companies have an option to prepay their debts, as per the restructuring proposal. The lenders are overexposed to the steel sector and will want to balance their exposure. We are encouraging refinancing," said ICICI Bank's Executive Director S Mukherji.
The borrowers do not need to pay a penalty for prepayment of loans. Ispat is looking at refinancing around Rs 1,500 crore (Rs 15 billion) of its debt, while Essar is planning to refinance Rs 2,000 crore (Rs 20 billion). Essar and Ispat have also paid off their foreign debts.
Banks and FIs had restructured Rs 20,000 crore (Rs 200 billion) of debt in these companies.
"Most of these companies are performing or out-performing in terms of the volumes and prices projected by us. There is now 100 per cent capacity utilisation," said ICICI Bank's general manager K M Jayarao.
JVSL prepaid around Rs 75 crore (Rs 750 million) in 2002-03. Its outstanding debt at the beginning of 2003-04 was around Rs 5,000 crore (Rs 50 billion).
It plans to prepay Rs 400 crore (Rs 4 billion) in this financial year.
Essar retired $250 million high-cost floating rate notes at a discount of 24 cents to a dollar, besides another $130 million. It, thereby, lowered debt by Rs 1,200 crore (Rs 12 billion).
Both Jindal and Ispat have opted for an one-time settlement of their foreign loans.
"We are in a prepayment mode. We are working out various alternatives on refinancing debt since we plan to reduce debt by Rs 1,000 crore (Rs 10 billion) in 2003-04," a JVSL executive said.
An Ispat executive said, "The company is aiming at refinancing Rs 1,500 crore (Rs 15 billion) debt by foreign loans."
After the corporate debt restructuring of these companies, the weighted average cost of debt dropped from 14-18 per cent to around 11.6 per cent. Through refinancing, they are planning to bring down the cost further.
"Refinancing debt will help reduce the cost for borrowers. After restructuring, these corporates have been doing quite well and prices are also stable," Jayarao pointed out.
However, there are some underlying worries.
"The operating costs have gone up. The prices of coke, power and scrap have been moving up," said Mukherji.
