A week after the Essar group signed a mega $12.9-billion deal to sell Essar Oil and Vadinar Port to Rosneft of Russia, three banks — ICICI Bank, Axis Bank and Standard Chartered Bank — have received over $ 2.5 billion (around Rs 16,750 crore) from the Essar group towards repayment of loans to Essar Global.
However, Standard Chartered Bank which received a major chunk of the money — $ 2.1 billion — has made a write-off of $850 million as part of the repayment plan, a top banking source said.
ICICI Bank and Axis which have an exposure of over $ 1.5 billion will get back around $ 775 million, or half of their exposure, from the Essar group. Of this, these two banks have already received around $ 375 million — 50 per cent of $ 775 million — and interest amount of $100 million on Friday. ICICI Bank has received 75 per cent of the cash and Axis Bank got the remaining 25 per cent.
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According to banker who is in the know of the development, 20 per cent of the remaining amount of $ 775 million will go to Rosneft and 30 per cent to ports and other businesses of the Essar group.
The remaining $775 million of the $1.5 billion exposure of ICICI Bank and Axis will be given back after the deal is consummated in January 2017. Stanchart has the biggest exposure of $ 3.35 billion in Essar Global. The two Indian lenders have not made any write-offs as part of the deal.
The debt transferred to Rosneft will be backed by sufficient collaterals while the Indian lenders’ decision to opt for only half cash component showed their confidence in Rosneft’s commitment to its India plan, he said.
“This deal (Essar-Rosneft) is a significant step in the process of deleveraging the balance sheets of Indian corporates. ICICI Bank has been closely working with various companies including the Essar Group to help them deleverage their stressed balance sheets. We will continue working towards this objective with others,” ICICI Bank MD and CEO Chanda Kochhar had said last week.
The Essar-Rosneft deal could result in the largest case of bad loan resolution, salvaging 10 per cent of the non- performing assets (NPAs) of the banking system, analysts and bankers said.
Essar Oil (EOL) promoters sold 98 per cent stake in the company to Rosneft, Trafigura and United Capital Partners at an enterprise value of Rs 73,000 crore while the capital employed was Rs 33,000 crore. The promoters have also sold their entire stake in Vadinar Port to the same investors for Rs 13,300 crore.
Public sector banks have not received any money as their exposure is mainly in Essar Steel. Resolution of Essar’s steel and power debt is expected to come up in the next stage after the deal is approved. Essar group has a total debt of close to $17 billion. Essar Steel is in the default category of many banks.
“Aggregate NPAs of the banking sector are now at Rs 650,000 crore (8.6 per cent of loans) as of June 2016 and an additional Rs 260,000 crore (3.5 per cent) are restructured. However, we estimate that another 4.5 per cent (Rs 330,000 crore) of stressed loans are still to be recognised as NPA/ restructured,” Credit Suisse said in its ‘India corporate health tracker’ report.