Essar Steel Said to Revamp Debt as HDFC Bank Deems Loan Bad

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Essar Steel India Ltd., backed by the billionaire Ruia brothers, is seeking to restructure part of its about 380 billion rupees ($6 billion) in debt, people with knowledge of the matter said.

Essar Steel is asking creditors to extend the tenor of some loans and grant a moratorium on interest payments for a certain period, they said, asking not to be identified as the matter is private. HDFC Bank Ltd. classified its loan to the company as bad in the quarter to March and decided against extending new credit to the alloy maker, they said.

The Indian steel industry is battling record imports, forcing producers to cut prices. Bhushan Steel Ltd. is also in advanced talks to reorganize about 230 billion rupees of long-term loans, people with knowledge of the matter said in March.

“More steelmakers with high debt would want to restructure their loans to get the benefit of a longer tenor,” Kunal Agrawal, an analyst at BNP Paribas SA, said by phone from Hong Kong. “However, Indian banks will be choosy as most of their non-performing assets are from the infrastructure sector including steel.”

Consortium Lending

State Bank of India, ICICI Bank Ltd., Axis Bank Ltd. and HDFC Bank are part of a consortium that lent to Essar Steel, the people said. Essar Steel has initiated the process of converting its rupee project loan of about 90 billion rupees out of a total term debt of 300 billion rupees under the Reserve Bank of India’s so-called 5:25 guidelines, the company said in an e-mailed response.

“We’d like to reiterate there’s no restructuring of loans,” Essar said.

India’s central bank started its 5:25 program last year that allows for “flexible structuring” of debt owed by infrastructure and industrial companies. It allows banks to lend for as long as 25 years, which could be refinanced every five to seven years.

Domestic steel prices are unlikely to see “any meaningful improvement” because of high inventory levels and weak global demand, according to a May report by ICRA Ltd., the local unit of Moody’s Investors Service.

New Borrowing

Essar Steel is also seeking about 40 billion rupees in additional loans, the people said. The amount is for working capital and has been approved by the consortium, Essar said in its e-mail response.

HDFC Bank last quarter sold the bulk of its Essar Steel loans to Edelweiss Asset Reconstruction Co., one of the people said. The steelmaker still has some dollar-denominated loan outstanding, that has also turned bad, with HDFC Bank, the person said.

“They have sold down the rupee loan, including the working capital loan and informed us subsequently,” Essar said in its statement.

HDFC Bank, Edelweiss and Axis Bank declined to comment, while ICICI Bank and State Bank didn’t immediately respond to a request seeking comments.

Essar Steel had for the first time restructured its loans in 2003 and extended the term of the loans, reduced interest charges and converted loans into equity, helping cut liabilities by 20 percent to 43 billion rupees, according to an exchange filing.

(Updates with rating company’s view in eighth paragraph.)
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