Essar Steel plans to raise $1 bn from overseas market

NEW DELHI: Essar Steel, the flagship company of the $15-billion Essar Group, is planning to raise $1 billion (Rs 4,600 crore) from overseas markets to fund expansion in steel capacities in domestic and overseas countries. The fund will be raised as external commercial borrowing by way of fresh issue of bond with long-term maturity period. Following the increase in demand of steel in the domestic market, steel majors like state-owned Steel Authority of India, Tata Steel, Essar Steel, Jindal Steel, have started expanding, expecting sharp increase in demand from infrastructure sector.

In addition, the group plans to list its business process outsourcing entity — Aegis — on the Indian stock exchange. A senior executive directly involved in the process said on condition of anonymity that Aegis was in the process of raising $150-200 million through initial public offer (IPO). A senior executive involved in the process said the fund-raising process for expansion would be completed before March end. In January 2010, the group merged its domestic steel companies — Essar Steel Hazira, Essar Steel Orissa, Hazira Plate and Hazira Pipe Mill under Essar Steel.

“Essar Steel is always looking at a range of funding options, but has not taken any specific decision on future financing,” the Essar group spokesman said. But an executive close to the development said the company is in the process of appointing three investment bankers — Deutsche Bank, UBS and Merrill Lynch and Bank of America — for the proposed bond issue.

Essar Group is diversified across various businesses. Each of these business verticals is structured under a holding company, which owns controlling interest in the operating business entities. In the past three years, the Essar Group has mopped up around $4 billion in various tranches through the structured debt route either in the holding company, Essar Global, apex holding company of the group, or under the respective business entities. Substantial part of the funds has been raised from the overseas market.