Mumbai, July 1: The euphoria over Essar Steel on the bourses has come to an end with doubts over the FRN bailout by institutions. On Thursday, the stock closed lower at Rs 13. During the last two months, the scrip on the Bombay Stock Exchange has more than doubled to Rs 13.80 from its April 26 close of Rs 6.40. Along with the price rise, the average daily volumes in the counter have also gone up substantially. From an average daily level of 30,000 shares during April last, the counter witnessed a whopping 3.54 lakh shares change hands on June 16.The sharp rise in the scrip was driven by expectations of a bailout by financial institutions by buying the FRNs from the secondary overseas market and rolling it over for another 2-3 years. Besides, steel prices were hiked on indications that demand would increase.
However, rigidity on the part of FIs had given rise to a possibility of default by the company. Meanwhile, Essar Steel sold its 42 per cent stake to Marathon Power of US which will fetch it $170million. The company has to pay back $250 million to its FRN investors.
However, amidst all the doubts over the feasibility of the FRN payment, market players feel the Government may not allow the company to default on its repayments, which are due on July 20. They argue that such a default, the first of its kind by any Indian corporate, would definitely send out negative signals to the international community about the state of the Indian economy.
"Of all probability, the finance minstry would step in and persuade financial institutions, lead by IDBI, to arrange a bail-out for the steel maker," said a steel-sector analyst. But in such a scenario, the FIs have to act on a war footing basis since hardly any time is left, the analyst said.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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