Rising interest rates have forced a change in Kesoram Industries Ltd’s plan to refinance its high-cost borrowings.
The cement maker would now wait for a rating upgrade and a benign interest rate cycle before swapping the entire Rs 1,653-crore debt on its book.
The flagship of the Basant Kumar Birla Group pays about 19 per cent on the loan taken in the form of debentures. With the existing ‘BBB-’ rating, it can at best hope to get fresh loans with a coupon rate of 14-15 per cent from the domestic market.
When it raised Rs 2,200-crore two years ago through a private placement of debentures, Kesoram stated its priority was to refinance it as soon as possible to reduce interest outgo. While some of it has been achieved by retiring loans through the proceeds of a rights issue, the company has a long way to go to reach a healthy debt profile.
“It probably does not make sense to swap the entire loan at this point given when the interest rate is rising. We will rather look at refinancing only a part now and wait for a better opportunity,” P. Radhakrishnan, whole-time director and CEO of Kesoram, said.
If Kesoram swaps the entire loan, it will have to refinance again at a later date with a lower coupon rate. Refinancing comes with the associated costs of pre-payment penalties and other charges.
With the company increasing its share of margin accretive blended cement in the sales mix and slowly raising capacity utilisation, it is expecting to generate Rs 650 crore of earnings before interest tax, depreciation and amortisation (EBIDTA) a year.
It is hoping to improve its credit rating going forward with the CEO setting an ambitious target of ‘AA+’, which may fetch a 9-10 per cent coupon rate.
This year, the company plans to refinance about Rs 400 crore of debt by the issuance of bonds. It may access another Rs 180 crore by accepting low-cost fixed deposits from the public, for which it received shareholders’ nod at the annual general meeting on Friday, for retiring debentures.
It may also be able to retire some of the debt from internal cash generation.
The company also plans to expand c apacity to 15 million tonne (mt) from 11mt at present. It could also look at acquisition to reach the target in 3-4 years.
Physical AGM
Kesoram became the first company from Calcutta to hold an AGM physically, even though the majority of its peers are still preferring the virtual mode to conduct the event. Shareholders came down in large numbers for the annual meet and spoke in turn while the majority of the board of directors also joined the event physically.
The company management, however, kept the online mode open as well, allowing shareholders and board members to join virtually.
