MUMBAI (TIP): Ruias-ownedEssar Steel on Thursday raised $1 billion or Rs 5,970 crore through external commercial borrowings (ECBs) to repay a part of its rupee-denominated debt, to guard itself from exchangerate volatility and save interest costs. The ECB subscribed by a large group of banks led by IDBI and ICICI Bank is expected to save interest cost to the tune of Rs 450 crore annually for the company with total debt of Rs 22,000 crore.

The loan was raised at 500 basis points above Libor, which translates into interest rate of less than 6% per annum. The company’s average rupee debt is at a coupon of 12%. Consequently, the average maturity of its debt or in other words the doorto- door maturity has nearly doubled. The dollar debt has an average maturity of seven years. The earnings, being dollar linked, would serve as a natural hedge to reduce the risks associated with currency fluctuations, the company said in a statement, adding that it will also gain significantly in terms of additional liquidity and substantial savings in interest cost.

Ashutosh Agarwala, CFO, Essar Steel India said, “Steel industry globally is going through a phase of weak demand resulting in lower realizations. It is imperative that the debt of the company is aligned to the earning currency thereby reducing volatility in earnings. The dollarization of rupee debt would not only de-risk our balance sheet, but also elongate maturity and reduce interest costs.” The company has been focusing on exports and is one of the biggest foreign exchange earners in India through export of steel products.

Steel product prices in the international markets and domestic markets show a very high degree of correlation. As a result even though the domestic sales revenues are realized in Indian rupee, the pricing methodology of the same is based on the landed cost of imported steel, which in turn is based on a dollar rate.