Essar Oil's debt refinancing to lower annual interest burden by Rs 400-450 crore

MUMBAI: The recent RBI's approval to Essar Oil to refinance its rupee denominated debts by raising upto $1.5 billion through external commercial borrowings (ECB) is expected to lower the debt-laden company's annual interest costs by Rs 400 - 450 crore. The saving would come mainly from the 5-6% drop in the interest rates on shifting to LIBOR-linked rates for foreign loans.

The company ended March '12 with net debt of $2.6 billion or Rs 13154 crore, which has gone up to approx Rs 14200 crore at end June '12.

The debt refinancing appears to be another good news for the company after getting a 2-year time to repay its sales tax liability to the Gujarat government last month and improving refining margins during the September quarter. The company has become highly leveraged - debt equity ratio of 5.8 at end March '12 - and cash strapped.

The company spent Rs 766 crore on merely interest payments in the June '12 quarter, in which it posted a net loss of Rs 1400 crore - its fourth consecutive quarter of losses.

Still the brokerage houses have been gung-ho about the company's future. According to the result estimates for the September '12 quarter by Morgan Stanley, Citi and Deutche Bank, Essar Oil's operating profit - profit before depreciation, interest and tax - is expected between Rs 1200 and Rs 1400 crore, which will be the highest in its history.