With interest rates heading southwards in the last 12 months, officials said the move was essential to bring down the average cost of borrowing. The company has decided to forgo Rs 200 crore of rupee debt. Instead, it is going for a $50-million external-commercial borrowing (ECB) at 137 basis points over Libor. Hence, the copper-smelter project's debt-equity ratio has been revised to 1.7:1 from 1.5:1.

An increased dependence on foreign-currency loans will bring down the average cost of borrowing to 13.88 per cent, with average forex-cover cost at just 5 per cent.

In the last fiscal, interest cost fell from Rs 19 crore to Rs 13 crore. Indo-Gulf raised Rs 150 crore through 18-month 12.75 per cent non-convertible debentures(NCDs) last year to bridge-finance a Rs 315- crore public issue. The debentures have helped the company bring down its fund costs.

At present, the debt:equity ratio is around 2:1. Later, the bridge-finance raised last year will be replaced by equity. The equity is likely to be raised through a Rs 215-crore public issue and a preference-share issue of Rs 100 crore. Upon redemption of the bridge-finance debentures, the debt-equity ratio will arrive at the targeted 1.7:1.

The proposed $50-million syndicated loan will be raised at 137 basis points above Libor. The "all-in cost" works to around 153 basis points above Libor, the officials said. The mandate for raising the funds has been given to ANZ Grindlays.

Of a project-cost of Rs 1,850 crore, the debt portion is Rs 1,240 crore. The company has raised only Rs 554 crore against the originally sanctioned Rs 665 crore. The officials say Indo-Gulf does not propose to raise any more rupee loans from the FIs. The debt portion to be raised throughforeign-currency loans is Rs 498 crore. This includes a $60-million ECB raised earlier at 125 basis points above Libor.

Phase II expansion stays on agenda

Indo-Gulf Chemicals & Fertilisers has decided to go ahead with its proposed phase II expansion of the copper-smelter project, increasing the smelter capacity to 150,000 tonnes per annum. It is expected to commission the copper smelter's 100,000 tonne first phase later this month. Company officials said the trial runs have commenced since last week. Managing director BN Puranmalka said the Phase-II expansion cost will be around Rs 340 crore, to be funded via internal accruals and debt. There will be no issue of equity shares for funding the phase II expansion.

The company had earlier said that the 100,000 tonnes per annum copper smelter has a provision for hike in capacity to 1,50,000 tonnes, but had said a definite decision on the issue will be taken later.

Puranmalka said that work on the second phase is expected to begin later this fiscal.The company expects demand in the copper industry to grow at over 7.5 per cent per annum. By 2001, the gap in domestic demand and production in the copper sector is projected to be around 60,000 tonnes per annum. It has projected a Rs 840-crore turnover at 60 per cent capacity utilisation from its copper business alone in 1998-99. This is expected to go up to Rs 1,300 crore by 1999-2000 at a capacity utilisation of 85 per cent.