Steeling the show


ING London assumed the role of documentation, security and facility agent and account bank, joined by BNP Paribas and Standard Chartered Bank as fellow arrangers, for a deal in India that stood out from the crowd during 2006.


The banks arranged a limited recourse steel pre-export finance facility to finance Stemcor UK’s lump sum advance payment to India’s Essar Steel, with Stemcor and ING sharing the delivery risk on the performance party.


The US$75mn one-year limited recourse pre-export finance facility amortises in five equal bimonthly instalments following a four months grace period, providing for a 10% participation by the borrower/offtaker in the risk on the performance party.


Contractual arrangements between Stemcor and Essar Steel were laid down in an advance payment and steel supply agreement assigned to the lenders. The security structure further included a pledged offshore collection account with proceeds so collected forming the source of repayment for the facility without the necessity to repatriate the export receivables into India.


Essar Steel, based in Mumbai, India, is the second largest private sector integrated steel company in India, belonging to the Essar Group which operates in various business segments: steel, power, shipping construction, oil and gas and telecoms.


The firm covers around 13% of the country’s hot rolled mill capacity and ranks among the lowest cost producers worldwide: ninth out of 146 plants globally, and second lowest in India.


Stemcor UK is a subsidiary belonging to Stemcor, the world’s largest independent steel trader, responsible for shipping about 5% of globally traded steel and a growing amount of steel making raw materials.


In addition to its proprietary trading, Stemcor acts as stockholder in Western Europe, a marketing agent for several steel mills, an equity holder in three iron ore mines, and financier of several steel mills through limited recourse pre-finance structures.


“The classical limited recourse structure proved a perfect fit to both our clients’s commercial and financial needs,” says John de Lange, head of ING’s structured commodity finance team, based in Amsterdam.


“The facility confirms Essar Steel’s return to the international syndicated loan market and has allowed the company to refinance more expensive local debt. With Indian corporates generally financed by means of a combination of (i) short-term debt secured by a first charge on current assets and a second charge on fixed assets and (ii) medium-term debt secured by a first charge on fixed assets and a second charge on current assets, this performance-based facility was structured to rely merely on the production and delivery capabilities of a first class Indian steel producer (Essar Steel) in combination with the marketing and sales strength of the world’s largest
independent steel trader, Stemcor.”


”Thi is an Indian asset class not generally available in the market,” adds De Lange. “ING was able to arrange this transaction by drawing on its experience in the global steel market and seamless client coverage in both India and the UK.


“ING has had a good relationship with Stemcor for about 10 years, although this is our first structured deal involving Essar.”


Deal information:


Borrower: Stemcor UK Ltd
Amount: US$75mn
Mandated lead arrangers: BNP Paribas;ING; Standard Chartered Bank
Tenor: 1 year
Law firms: Linklaters Allen and Gledhill; J Sagar (lenders); Lovells (borrower)
Date signed: July 2006