Already on a high debt of Rs 48,500 crore at the end of the first quarter of the current fiscal, Steel Authority of India (SAIL) proposes to raise further debt by up to Rs 5,000 crore in the next one year through a private placement of secured non-convertible debentures/bonds.
The company intends to use the debt to part-fund its ongoing capacity program and convert some short-term debts into longer tenure. According to Edelweiss, SAIL has an Rs 3,200-crore debt repayment obligation in the current fiscal. SAIL also proposes to spend Rs 4,000 crore on capacity expansion this fiscal.
“On analysis of the various options of raising funds through borrowing in domestic and international markets, it has been decided by the board of directors to raise funds through private placement of secured non-convertible debentures/ bonds to the extent of Rs 5,000 crore during the year,” SAIL said in a letter to the shareholders ahead of the annual general meeting.
SAIL reduced its debt to Rs 45,170 crore as on March 2019 from Rs 45,409 crore a year earlier. However, debt further rose to Rs 48,460 crore at the end of the first quarter of the current fiscal. As of March 2019, the debt-equity ratio of the company stood at 1.2:1. The company paid Rs 3,155 crore on interest and finance charges alone in 2018-19.
Edelweiss said, “Despite management guiding for debt to stay below Rs 44,000 crore, as at Q1 FY20 end, it stands at Rs 48,500 crore — the highest-ever level for SAIL. Besides, we are concerned on cash commitments – 1) capex of Rs 4,000 crore in FY20 (E) and 2) Rs 3,200 crore debt repayment obligation. These are expected to account for the bulk of Ebitda amid a challenging operating environment besieged by weak prices.”
“Management anticipates debt to remain at the same level as FY19 despite a scheduled repayment of Rs 3,200 crore,” it added.
Inclusive of Rs 4,303-crore capital expenditure in 2018-19, SAIL has spent Rs 69,623 crore on its expansion programs till June 30, 2019. For the current fiscal, SAIL proposes to spend around Rs 4,000 crore on the same, taking the total capex on expansion to Rs 73,623 crore. In the first quarter of the current fiscal, the company spent Rs 900 crore on capex, according to Edelweiss.
With the completion of ongoing modernization and expansion programs, SAIL’s saleable steel production capacity would go up to 20.23 million tonnes per annum (MTPA). In 2018-19, SAIL’s saleable steel production stood at 15.1 MTPA, up 7% over the previous fiscal.