Essar asset sale may get lower valuations

■ Deals for Aegis, Essar Ports yet to materialise

THE Essar Group may be forced to sell some of its prized assets at valuations lower than previously sought, reports Deborshi Chaki in Mumbai. While the group is currently in talks with potential investors to sell part of the promoters’ stake in Essar Steel, sources say it is also exploring options to raise additional funds by diluting stakes in other group companies, including BPO arm Aegis and Essar Ports, part of its infrastructure business.

TO pare its debt of over R60,000 crore, Essar Group may be forced to sell some of its prized assets at valuations lower than previously sought. While the group is currently in talks with potential investors to sell part of the promoters' stake in Essar Steel, which has a total debt outstanding of over R40,000 crore, sources say that it is also exploring options to raise additional funds by diluting stake in other group companies, which include its BPO arm Aegis and Essar Ports part of its infrastructure business.

While both Aegis and Essar Ports have been on the block for a while now, sources say that a deal is yet to materialise due to differences over valuation. While Aegis's US operations were sold for $610 million in 2014, the group was also looking for a buyer for the remaining operations across India, Sri Lanka, Malaysia, Australia, South Africa, Peru, Argentina, Saudi Arabia and the UK but could not strike a deal because Aegis's profits had dipped significantly after sale of the US arm.

With Aegis again tur ning marginally profitable recently, sources say that Essar Group has once again begun looking for a buyer. However, when contacted an Essar spokesperson denied any plans of either a stake sale or completely exiting Aegis. "Aegis is hiring more employees to expand its operations and there are no plans to sell any stake in the company,” the spokesperson added.

Industry sources, however, maintain that surge in hiring and expansion is possibly a precursor to an imminent sale with an eye on expected valuation. Similarly, sources added that Essar was in talks with Adani group sometime back to sell part stake in Essar Ports but there too talks did not fructify over a valuation mismatch.

A senior Essar group employee, who did not wish to be identified, told FE that the group is looking at options to sell part of Essar Ports stake to investors in Essar Steel and Essar Oil since the port assets are largely captive units mainly catering to these two companies.

Essar Steel needs to pay lenders close to R3,000 crore immediately to keep outstanding loans to the tune of

R25,000 crore (loans of R15,000 crore have already been restructured) from turning into NPA.

Essar Steel is not alone in selling assets to retire debt. Many Indian companies, including the Jaypee group, Reliance Infrastructure and the Avantha group, have sold assets or are in the process of selling them in the current fiscal year. The debt of these companies has ballooned as they went on an expansion spree in the last few years. With demand not picking up, these companies were unable to repay loans.

Essar Steel has also availed of the Reserve Bank of India’s 5/25 scheme under which the banks extended its loans by another 25 years with an option of refinancing every five years.