Proceeds from Rosneft deal will help lower Essar’s debt by ₹70,000 cr: Prashant Ruia
The Essar group’s debt will reduce by close to ₹70,000 crore with the completion of the sale of Essar Oil and related port assets, said group director Prashant Ruia on Monday. Ruia was speaking after OAO Rosneft, and a consortium of Russian private equity fund United Capital Partners and Singapore-based commodity firm Trafigura Group Pte announced the close of their $12.9 billion deal to buy Essar Oil.
Part of the sale proceeds would be used repay Indian lenders including the Life Insurance Corporation of India; however, no funds will be used to repay the debt of Essar Steel Ltd from this transaction, Ruia said.
Essar Steel Ltd, one of the 12 cases identified by the RBI for early bankruptcy, is currently being managed by an interim resolution professional under India’s bankruptcy code.
As part of the deal, Rosneft PJSC and consortium of commodity trader Trafigura Group Pte and United Capital Partners have acquired 49.13% each in Essar Oil, with rest distributed among retail shareholders. Essar’s promoters, the Ruias will hold 2% in the Trafigura-UCP consortium. The deal, the largest foreign direct investment in India, was announced by Indian Prime Minister Narendra Modi and Russain President Vladimir Putin during last year’s BRICS summit, but the valuation was only driven by commercial considerations, Tony Fountain, the newly-appointed chairman of Essar Oil said. He said the Ruias had signed a permanent noncompete agreement and would not enter the oil refining and retailing business in India ever.
According to an Essar spokesperson, this is how debt would be reduced from the group balance sheet: About $5 billion of loans at the group holding company level would be retired. Another $5.4 billion of loans on the books of Essar Oil, Vadinar refinery and Vadinar port would be transferred to the new owners. Indian lenders such as the Life Insurance Corp would get $600 million towards their dues. This adds up to $11 billion or about ₹70,500 crore of debt.
That would wipe off at least half the debt on the Essar group’s balance sheet. While Essar has remained mum on overall debt, brokerages estimate it at close to ₹1.3 lakh crore at the time of signing the deal in October.
“This transaction reduces ICICI Bank’s exposure to the Essar Group by about 50%,” said Chanda Kochhar, MD and CEO of the Indian private lender.
The group had also partly repaid ICICI bank and Axis Bank’s loans to the holding company, the company said.
Ruia clarified that Essar Oil has about 2 billion euros of outstanding payments to Iran against crude purchases and the new owners of the company will honour these payments as per an earlier approved schedule.
Meanwhile, Tony Fountain, a nominee of UCP, was named as chairman and B Anand as CEO, on Monday. The new board has set a target of expanding the company’s retail distribution network to about 6,000 pumps from the current 3,500, Fountain said.
Rosneft first expressed an interest in India’s second largest private oil refiner in 2015. The deal took a longer than expected 10 months to complete after the formal signing in October because lenders demanded a repayment of their debts as a precondition for approving the deal.
Debt-laden textile maker Alok Industries Ltd, which is in bankruptcy court, has caught the eye of financial investors. A distressed asset investment platform by Piramal Enterprises Ltd and private equity fund Bain Capital Credit, and India-focused special situations fund AION Capital Partners Ltd have shown interest in buying a stake in Alok Industries, two people aware of the development said.
“The cases referred to the National Company Law Tribunal (NCLT) have been witnessing strong interest from financial investors. The likes of AION and Piramal-Bain are some of the few active investors focusing on this space and Alok Industries is one asset that’s on the radar of these funds,” said one of the two people cited above, requesting anonymity as he is not authorized to speak to reporters.
AION Capital and Piramal Enterprises declined to comment to emailed queries while Alok Industries said neither entity has approached it for investments.
Piramal Enterprises had launched a $1-billion distressed asset investment platform with private equity fund Bain Capital Credit in 2016.
Bain Capital has been actively investing in stressed assets across the globe, including Asia.
AION is an India-focused fund established by Apollo Global Management Llc. together with ICICI Venture Funds Management Co Ltd, with around $825 million in committed capital.
State Bank of India, one of the lenders to Alok Industries, had moved an insolvency petition before NCLT on June 29. On July 18, the tribunal admitted proceedings against Alok Industries, which owes about ₹23,000 crore to lenders and trade vendors.
The Ahmedabad bench of NCLT has appointed an interim resolution professional to start insolvency proceedings. The process is expected to continue till January. Alok Industries is one of the 12 large defaulters named by the Reserve Bank of India for reference to NCLT.
In June, RBI named 12 large defaulters and asked banks to initiate insolvency proceedings against them under the insolvency and bankruptcy code. These 12 companies account for almost a quarter of the bad loans in the banking system and include names such as Monnet Ispat and Energy Ltd, Amtek Auto Ltd and Essar Steel Ltd.