Essar Steel - Defaulting on Debt Payment
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Case Code : FINC020
Case Length : 16 Pages
Period : 1998 - 2001
Pub. Date : 2002
Teaching Note :Not Available
Organization : Essar Steel
Industry : Steel, Financial Services
Countries : India
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
Essar's parent organization, the Essar Group was engaged in various businesses including power, telecom, shipping, oil and iron and steel. Essar was the second largest private sector steel manufacturer in India (TISCO is the largest).
The history of the Essar Group dates back to 1956, when its founder, Nand Kishore Ruia (NKR) began undertaking independent contract works (mostly in the construction and shipping businesses) under the name of Essar Construction and Carriers Ltd.
In 1969, after NKR's demise, his brothers Shashi Ruia and Ravi Ruia took over the business responsibilities. During the 1970s and 1980s, the company diversified its operations by entering into the power, steel and oil businesses. Over the years, the Essar group continued to grow in related fields i.e. offshore construction, pipeline laying, contract drilling and marine transport.
The liberalization of the Indian economy in the early-1990s opened up many opportunities for the Essar group. The Ruias tried to diversify further and emerged as a conglomerate of companies (Refer Table I).
Essar was incorporated in 1976 as Essar Steel Ltd. According to analysts, the Ruia family played a significant role in the development of the industry. Essar was the first private sector company, which was permitted by the government to set up a 2-million tonne steel plant. During that period (1989), the group found out that it was difficult to acquire long-term funds for financing capital-intensive projects such as steel in India. Moreover, foreign investors were also not permitted to extend funds for more than five years. Due to this, Essar had to borrow funds from Indian FIs, for the construction of the Hazira (Gujarat) hot rolled coil (HRC) plant (with a repayment period of seven years)...