Do or die: The group now has to await the NCLT-appointed IRP’s insolvency resolution professional’s efforts evolve a viable turnaround plan. or face liquidation. Reuters
For the promoters of the debt-laden Essar Group, the billionaire Ruia brothers, a lot hinges on the final clearances from the government for its $12.9 billion deal to sell Essar Oil to a consortium led by Russia’s Rosneft.
The Indian lenders to the steel-to-shipping conglomerate are, however, pinning their hopes on recovering some of the ₹1.4 lakh crore in debt that the group owes to overseas and domestic financiers mainly on the insolvency process that has been initiated at the National Company Law Tribunal (NCLT) against Essar Steel.
“The joint lenders’ forum comprising 23 lenders approved and authorised the release of shares of Essar Oil Limited as per original terms and condition and the deal is likely to be completed in the next couple of the weeks,” a member of the lenders’ consortium led by the State Bank of India (SBI) and ICICI Bank, said on condition of anonymity.
Still, how much of the sale proceeds are likely to reach Indian banks that have lent to the group is a moot point, according to the banker.
“We can’t force the Essar promoters to pay for steel debts, from the money they got from selling Essar Oil,” the bank official said.
While the lenders’ forum conveyed its approval of the transaction in June — about nine months after the agreement was signed in October in the presence of Prime Minister Narendra Modi and Russian President Vladimir Putin – the deal is yet to win a final nod from the Centre after the home ministry raised security concerns over the proposed sale.
For the Ruias the about ₹86,000 crore that the buyers have agreed to pay, including the $5 billion worth of Essar Oil debt that the Rosneft-led consortium is set to assume, will provide the means to substantially reduce debt at the group’s holding company level.
“This is the largest single instance of deleveraging by any corporate group in India’s corporate history,” Essar Group CEO Prashant Ruia said, referring to the Essar Oil transaction. The deal is on the cusp of closure as all approvals had been received and only some final details were being concluded, he added.
According to Mr. Ruia, the group plans to repay more than $10 billion in debt: $5 billion from the books of Essar Global, and $5 billion from the combined sale of Essar Oil, Vadinar Port and Vadinar Power, as the buyers would assume the debt as per the terms of the agreement. While Essar Global’s repaments will include $3.8 billion that it has to pay Russia’s VTB Bank for a bridge loan provided in lieu of the Essar Oil deal, another $600 million worth of loans would need to be repaid for guarantees provided to U.S. subsidiary Essar Steel Minnesota.
The group will also have to pay $2.3 billion in oil dues to Iran, leaving the promoters with less than $1 billion, according to Mr. Ruia.
Essar has also agreed to sell 100% in Aegis, the group’s global outsourcing arm, to Capital Square Partners for approximately $300 million. Almost the entire sale proceeds will be used to reduce debt, a group spokesperson said.
“Essar Oil is sold,” said Paras Bothra head of research at Ashika Stock Broking. “It is to be seen if the promoters are able to save Essar Steel from bankruptcy, which looks difficult as it’s up to the NCLT to take a call. Minus Essar Oil and Essar Steel, the Essar Group will be reduced to [being a] power, port and shipping player.”
Having mounted a hitherto unsuccessful legal challenge to lenders’ efforts to take Essar Steel through the insolvency process under the new Insolvency and Bankruptcy Code, the group now has to await the NCLT-appointed insolvency resolution professional’s efforts to come up with a viable turnaround plan or face liquidation.
“We have infused ₹19,000 crore of equity, of which ₹8,000 crore was infused in the last 4 years,” said a top group official on the condition of anonymity. “The lenders in January had cleared our restructuring proposal with ₹2,500 crore of additional equity infusion. We had Farallon Capital ready to infuse equity,” he said, adding that the reference to the NCLT had come as a hard blow.
Essar Steel, which owes lenders about ₹45,000 crore, had petitioned the Gujarat High Court against the reference to the NCLT but was refused relief.
“We have entered a favourable commodity cycle and many of the obstacles we faced in our steel business are now behind us,” the Essar official said, still hopeful that the group would get a chance to salvage the situation at the steelmaker. “Much of our past woes were because of government policies, which have now been addressed.” He added that Essar Steel was banking on improved cash flows as all its units were now operational and capacity utilisation was improving.