Bizbits

Essar told to spend own fund

NEW DELHI: The Financial Institutions (FIs) have asked Essar Steel to bring in Rs 800 crore of its own funds, before they sanction it a further loan of Rs 1,700 crore. This is part of a package hammered out by FIs along with the finance ministry last fortnight. Apart from financing of its current expansion projects, Essar needs around Rs 1,100 crore before July, to redeem $250 mn (Rs 1,125 crore) of floating rate notes raised abroad earlier — in all, Essar was looking for a loan of around Rs 2,500 crore.With a large exposure to steel firms, and in view of the dismal steel scenario, the FIs had in the past rejected requests from several steel companies including Essar. But since the companies were in serious trouble, and that in turn would have jeopardised the substantial loans given by the FIs to these very firms earlier, the finance ministry was keen to work out a solution. Between the FIs and commercial banks, the overall exposure to the steel sector is a whopping Rs40,000 crore. It was then decided that, in the case of Essar, the company should bring in more of its own funds to provide some comfort levels to the FIs. The FIs have suggested to Essar that it sell off some of its existing assets, such as a power plant, to raise the funds. Essar Steel may also raise funds from overseas markets and dilute the promoters equity.