July 13: The Steel Authority of India Limited (SAIL) plans to convert some of its loans from the Steel Development Fund (SDF) into government shares.Chairman Arvind Pande told newspersons here on Saturday evening that SAIL could improve its debt to equity ratio if the Centre allowed it to convert roughly Rs 1,500 crore of borrowings from the SDF into preference shares. He hastened to add that the company was only toying with the idea at this stage and no formal proposal had been made to the Steel Ministry as yet.

The SAIL chief felt that the resulting inflation of the company's already large paid-up equity capital of Rs 4,130.4 crore would not hurt the stock market sentiment of its scrips. Institutional investors (which now own the bulk of SAIL shares) were more concerned with the fundamentals of a company than its dividend pay-out, Pande said.

He pointed out that SAIL's debt to equity ratio of 2:1 was not uncomfortable, but a little high compared to that of steel companies worldwide. The ``navratna'' is at the moment the eighth largest steel producer in the world, with a crude steel output of roughly 10 million tonne.

The Rs 14,000-crore-turnover steel giant was a global player in terms of size, Pande emphasised, even if it was not the most ``globally noticed'' steel producer. Trimming its debt to equity ratio is not just part of the SAIL drive to hone its ``navratna'' virtues, but also part of its efforts to spruce up its accounts in a difficult year.

The company, which has a broad plan of funding two-thirds of its capital investment schemes from internal accruals, has had to depend more heavily on borrowings over the last three years. SAIL's borrowings from the SDF, the Centre, foreign sources, the bond market and banks increased by 29 per cent from Rs 22,374 crore in 1993-94 to Rs 28,929 crore in 1995-96.

During the current fiscal SAIL plans to raise Rs 1,500 crore from the debt market. In April it issued bonds worth Rs 500 crore, that attracted a coupon rate of 14.5 per cent. Merchant bankers are already trying to privately place $ 100-million or Rs 350 crore with overseas investors.

By the end of the year, said Pande, SAIL planned to launch another debt issue in the domestic market. Increased borrowings, though necessary in a year in which slimmer profit margins are contributing less and less to SAIL's cash reserves, are definitely not part of the company's broad corporate plan.

`We are taking some internal actions too,'' he said, ``like cost control and expenditure control...'' To graple with the pressure on sales margin in the absence of demand for steel and the almost 30 per cent increase in input costs, SAIL was concentrating on an in-house cost-cutting drive, Pande said.

Pande hinted that SAIL's spending during 1997-98 would be restricted to the bare essential, like completion of the modernisation of its four-million-tonne capacity Bokaro steel plant. Capital expenditure necessary to fulfill the SAIL dream of enhancing its steel-making capacity to 14 million tonne by the year 2002 from 10 million tonne now, would be considered after investments already made in SAIL plants began to pay dividends.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.