Shashi and Ravi Ruia promoted Essar Group has concluded its biggest monetisation exercise by selling flagship Essar OilBSE -0.15 % to Russia’s energy giant Rosneft and partners Trafigura and UCP Investment Group, providing relief to lenders.
The transaction has been in the making for over two years and ET was the first to report the negotiations in March 2015. The deal was signed in October last year in the presence of PM Narendra Modi and Russian President Vladimir Putin at the BRICS Summit but faced delays as Essar’s lenders had reservations and India’s intelligence agencies raised red flags.
“We have completed our monetisation and deleveraging programme, which is the largest undertaken by any corporate in recent years. With the completion of our capex programme, we now look forward to a period of growth in our wider portfolio of existing businesses like steel, coal bed methane, oil and gas exploration, ports and infrastructure,” said Prashant Ruia, director, Essar Capital.
The conglomerate has been grappling with debt after an $18-billion spending spree to build power and steel plants and an oil refinery over the past 10 years.
The group has been struggling to maintain sales and profitability amid commodity price volatility and slowing demand. While Essar Group has a non-compete agreement with the new owners of Essar Oil, the group will not exit the energy sector and will focus on its coal bed methane business.
The deal will help Essar Group halve its debt to Rs 70,400 crore ($11 billion). This includes repayment of Rs 32,000 crore ($5 billion) to the main lenders of the group’s offshore holding company, Essar Global Holdings, now renamed Essar Global Fund. They include Russian lender VTB, ICICI BankBSE 0.02 % and Axis Bank.
Another Rs 34,400 crore ($5.4 billion) of debt at the level of operating companies, namely, Essar Oil India, Vadinar Oil Terminal and Vadinar Power Company, will get transferred to the new EOL (the company formed post the Rosneft investment) and would cease to be Essar Group exposure for banks. Essar executives said they have already paid Rs 4,000 crore ($600 million) to various other lenders at the operating companies.
These include Life Insurance Corporation, which has been paid in full, some other insurers and local lenders such as IDBI Bank, which wanted all dues to be cleared before approving the transaction.
LIC also gets a seat in the 12-member board of the new company. The acquirers and Essar Group have also finalised the payment details for Essar Oil’s $2-billion dues owed to Iranian oil companies for crude sourcing.
Both parties said the amount has been factored into the valuation.
Share prices of ICICI, Axis, Yes and IDBI Bank gained up to 2.5% intraday on Monday before ending the day in the red. “This transaction reduces banks’ exposure to Essar Group by about 50%,” ICICI Bank MD Chanda Kochhar said after the announcement.
Axis and ICICI — which together have a $1.6-billion exposure — will continue to hold a part of the debt. Part of their exposure is being transferred to the operating port and terminal entities that are part of the mega transaction. Essar Oil will pay an “additional amount” to the shareholders who tendered shares when the company delisted in June 2014.
The Securities and Exchange Board of India had asked the company to compensate these shareholders if the valuation of the Rosneft deal was higher than the delisting price. Essar Group declined to comment on the per share difference between the 2014 price and the current valuation.
Source: Economic Times