$12.9-billion sale: Rosneft deal to cut debt by over 60%, says Essar

Essar Energy to use Rs 32K cr for holding company debt; Rs 4K cr for Indian banks

By: ENS Economic Bureau | Mumbai | Published: August 22, 2017 3:55:12 am
essar, essar oil essar energy, essar group, Rosneft deal, business news Prashant Ruia, Director, Essar Capital (left) and Suresh Jain, CFO, Essar Oil in Mumbai on Monday. Express Photo by Nirmal Harindran

Essar Oil, which announced the completion of sale of its India assets to the Russian government controlled Rosneft-led consortium for $12.9 billion on Monday, said it will pay back as much as Rs 70,000 crore to lenders, bringing down the group’s debt by over 60 per cent.

Giving details of the debt to be repaid using the proceeds, an Essar group official said that Essar Energy has used Rs 32,000 crore to repay debt at the holding company level. Another Rs 4,000 crore has been used to repay Indian lenders at the operating company level. In addition, Rs 34,000 crore in debt has become non-Essar exposure as it has been transferred to the new owners of Essar Oil.

Indian banks had an exposure of Rs 40,000 crore to the group before the completion of the deal. State Bank of India, ICICI Bank and Standard Chartered Bank are among the lenders that have maximum exposure to Essar.

The Ahmedabad bench of the National Company Law Tribunal had recently approved initiating bankruptcy proceedings against group entity Essar Steel. The tribunal, while admitting two petitions filed by SBI and Standard Chartered Bank, rejected Essar Steel’s contention that insolvency proceedings should not be initiated against the company as it had already started a debt restructuring process with its creditors.

Chanda Kochhar, MD & CEO, ICICI Bank, said the deal will halve the bank’s exposure to the Essar group. “I am delighted to note that the entire ecosystem including the government, regulators, banks and various authorities worked together to complete the deal which is also the largest ever foreign acquisition of an Indian company. The deal also underscores the keenness of foreign investors to enter India, the fastest growing large economy in the world. This transaction reduces ICICI Bank’s exposure to the Essar Group by about 50 per cent.”

According to banking sources, the deal has come as a relief to the banks which will see part of their loans to the group repaid and the remaining debt transferred to a financially stronger entity. As part of the deal, Rosneft and a consortium of Trafigura and private investment group United Capital Partners acquired 49.13 per cent stake each in Essar Oil, Essar Group said in a statement. The remaining 1.74 per cent stake continues to be held by retail shareholders. The transaction includes sale of Essar Oil’s refinery and retail assets worth $10.9 billion together with Vadinar Port and related infrastructure assets worth $2 billion.

Prashant Ruia, Director, Essar Capital, said: “With this deal, we have completed our monetisation and deleveraging programme, which is the largest undertaken by any corporate in recent years. We have substantially deleveraged our portfolio companies’ balance sheets, reducing debt by over $11 billion (Rs 70,000 crore). With the completion of our capex programme, we now look forward to a period of growth in our wider portfolio of businesses.”

Rosneft CEO, Igor Sechin said, “Together with our partners we intend to support the company to significantly improve its financial performance and, in the medium term, adopt an asset development strategy. The acquisition of the stake in the Vadinar refinery creates unique opportunities of synergies with existing Rosneft-owned assets and will help improve efficiency of supply to other countries within the region.”

Meanwhile, in a PTI report, Essar Oil’s new non-executive director Jonathan Kollek said that under a non-compete pact the Ruias will never be able to re-enter the oil refining and retailing sector in the country.

“They cannot build a refinery, they cannot build petrol stations. There is a non-compete, forever,” Kollek said, adding Rosneft will pay a royalty to Essar group for using the brand name of Essar Oil at the over 3,500 petrol pumps, which are also part of the deal.

The Ruias will, however, continue to run their refinery in Britain, wherein they have a 9 million tonne facility at Stanlow, and also their coal bed methane blocks in the country.

However, Essar Group, in a statement, has denied the longevity of the non-compete clause and said the clause is for three years only.

“The non-compete clause is only for a limited period of three years, after which this clause is no more applicable,” Essar spokesperson said.

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