Essar, Rosneft deal to close this month
The Essar group is racing against time to close the $13-billion sale of its Gujarat-based refinery to Russian oil major Rosneft by as early as next week.
The group has received $300 million from the Russian company for its stake in Essar Oil and expects the rest of the proceeds with the deal closure to help retire its debt.
Deal closure before March 31 is important for the group, as a withholding tax takes effect from April 1. By a new regulation, sale of shares from Mauritius-based entities would be taxed in India from the next financial year.
When asked, an Essar official said the deal would be complete by March-end and all tax aspects dealt in accordance with laws in India at the time of completion.
Another reason to close before March 31 is that the group has huge debt liabilities on the books of its steel unit. The group has indicated that it would be able to shave half its ~88,000 crore debt with the Rosneft transaction. Beside, according to a banker, the group is also on a deadline to sell 24-26 per cent stake for ~1,700-crore to Farallon Capital, a private equity entity, in its steel unit. These funds would be used to repay the debt on the books of the steel unit. State Bank of India (SBI) would othersie be converting its loans into equity to get 30 per cent stake in the steel company. With the government and the Reserve Bank of India taking a tough stand on defaulters, many Indian promoters are being forced to sell assets to repay banks.
Bank officials, however, said the steel company was likely to miss the deadline for sale of stake. This puts additional pressure on the group to close the Rosneft transaction before the month-end.
At present, lenders are working on estimates for a haircut, additional investments and change in corporate governance clauses for enhancing control over the ailing steel company.
The enterprise value of the transaction also covers the debt on the books of Essar Oil worth $4.5 billion; the equity value will be about or a little higher than $5.8 bn.