Business Standard reported that to cut the risk to its balance sheet, Essar Steel plans to complete the conversion of its remaining USD 2 billion rupee loans into dollar ones by June, improving cash flows.

Mr Mahadev Iyer director finance and CFO of Essar said that “We are in advanced stage to dollarise the balance USD 2 billion rupee loan, which will not just reduce our interest burden but also stretch the repayment tenure by about 4 years. Dollarisation of the USD 2 billion rupee loan will halve the interest cost from 12%, 13% to 6%, 7% and result in interest saving of about INR 1,200 crore annually.”

He said that “The tenure for repayment of the loan, which is 6 years, will stretch to10 years after dollarisation and this will put us in a comfortable position in terms of cash flow.”

In June 2013, the company had raised USD 1 billion through external commercial borrowings to repay part of its rupee denominated debt which shielded it from exchange rate fluctuations and helped save about INR 450 crore on interest costs. As of December 2013, unlisted Essar Steel had a debt burden of INR 29,000 crore while its parent group’s group stood at about USD 12 billion.

A dollar loan is a natural hedge for companies that have dollar inflows. Since 25% of Essar Steel’s total revenue is accounted for by exports, a dollar loan isn’t viable for the company.