Essar Ports to refinance debt to cut interest costs
Essar ports limited, a unit of the USD 17 billion Essar group, plans to pare its interest costs by refinancing the debt of all its existing projects, Daily Shipping Times reports.
The company will initially refinance up to INR 1,000 crore through long-term financing, and may later raise money through the external commercial borrowing (ECB) route and long-term bonds to fund future projects, said Chief Executive Officer and Managing DirectorMr. Rajiv Agarwal.
“Our main focus is to reduce debt and contain capital expenditure. The idea is to save 2-3% on interest costs since interest rates of 12.5-13% are not very sustainable for infrastructure projects,” said Mr. Agarwal, adding the company will make no acquisitions and will focus on meeting its production target of 158 million tonnes (mt) in the next two years.
The company has two ports at Vadinar and Hazira in Gujarat, with a cumulative capacity of 88 Million Tonnes Per Annum (mtpa). It is undertaking expansion (new berths at Hazira, Salaya, Paradip ports) and is expected to add another 70 mtpa, boosting capacity to 158 mtpa by fiscal 2014.
In September, Essar Ports had refinanced its debt in a subsidiary, Essar Bulk Terminal Limited, through a long-term finance scheme of India Infrastructure Finance Company Limited (IIFCL) to reduce its interest rate by over 2.5% on INR 405 crore, which is part of the debt taken for building its 30 mt capacity bulk terminal at Hazira in Gujarat. The port company completed the transaction.
“We will be looking at availing takeout financing of around INr 220 crore for our Vadinar port terminal that is a 12 mt all-weather deep draft facility in Gujarat and other projects,” Mr. Agarwal said.
Essar Ports has assured cargo visibility due to its take-or-pay contracts with group firms (Essar Steel Limited,Essar Oil Limited and Essar Power Limited), which will account for 80% of cargo handled in fiscal 2015, analysts Mr. Shankar.K and Mr. Santosh Hiredesai at domestic brokerage Edelweiss Securities Limited wrote on 7 September.
The Edelweiss Securities analysts have cautioned that Essar Ports’ 54 mtpa capacity expansion is awaiting environmental clearance or approvals for the construction of new terminals.
Essar Ports’ Mr. Agarwal confirmed his port terminal project in Paradip and Salaya is facing delay due to some clearance and litigation issues. A section of the people at Paradip have moved the Supreme Court against Essar Ports protesting against its proposed coal berth, that would have got the port company at least 25% of revenue from third parties in the next two years.
“We expect we will get necessary approvals soon. But in two years’ time, we should be in line with the projection (158 mtpa). By 2020, the company plans to achieve a capacity target of 250 mtpa as the capacity at project locations of Hazira, Vadinar, Salaya can be doubled. Only Paradip has restrictions. But as these are modular projects, it will take some time,” said Mr. Agarwal.