Essar Steel on Thursday raised $1 billion (nearly Rs 5,900cr) through external commercial borrowing (ECB) route so that it could repay its rupee-denominated debt.

Carried out at Libor plus 4.5-5.5 per cent, the borrowing would help Essar Steel repay its debt, guard itself from volatility exchange-rate volatility as well as save interest costs. The one-year Libor (London Interbank Offered Rate) is at 0.67 per cent.

The company is currently paying a much heavier interest of 12-12.5 per cent on its rupee-denominated loans. The external commercial borrowing, which was subscribed by a huge group of lenders led by IDBI and ICICI, will thus help the company save interest costs.

The ECB will hike loan payback period from three years to seven years and cut the interest outgo by around Rs 450 crore per year. The Ruias-owned company is currently burdened under a debt mountain of Rs 22,000 crore.

Essar Steel Chief Financial Officer (CFO) Ashutosh Agarwala said, "Globally, the steel industry is going through a phase of weak demand resulting in lower realisations. It is imperative that the debt of the company is aligned to the earning currency, thereby reducing volatility in earnings."

Essar Steel earns in the range of $800 million to $1 billion through exports, which accounts for nearly a quarter of the company's total revenue.

The ongoing decline in demand for steel in India has forced Essar Steel to focus on export markets via its value-added steel.