1. After inking Rs 85,000 cr deal with Rosneft, Essar to use most of the funds to cut debt

After inking Rs 85,000 cr deal with Rosneft, Essar to use most of the funds to cut debt

ANALYSTS on Monday termed the R85,000- crore Essar-Rosneft deal positive for lenders as the Essar Group may invest a portion of the cash as equity in Essar Steel or Essar Power to deleverage them

By: | New Delhi | Published: October 18, 2016 6:23 AM

ANALYSTS on Monday termed the R85,000- crore Essar-Rosneft deal positive for lenders as the Essar Group may invest a portion of the cash as equity in Essar Steel or Essar Power to deleverage them.

Analysts said the Essar Group will likely to repay the debt of Essar Global Holding with R23,500-crore of debt. Essar Group CEO Prashant Ruia said on Monday that Essar “will (infuse) whatever additional equity is required to
complete to achieve the restructuring…”.

A Nomura report has pegged the total debt of Essar Group at R1.17 lakh crore – Essar Oil’s debt at R30,000 crore,
Essar Steel’s debt at R44,000crore, Essar Power’s debt at R20,000 crore and Essar Global Fund’s debt at R23,500 crore.

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“In our coverage universe, ICICI Bank, SBI and Axis Bank are the largest lenders to Essar Group,” the report said.
Of the R1.2 lakh crore of debt we estimate, Essar Steel and Power have been considered by banks as stressed assets,
while Essar Oil was never considered a stressed asset,” Adarsh Parasrampuria wrote in the Nomura report.

Arundhati Bhattacharya, chairman of SBI, told a news channel it was a good deal since the Essar Group will at
least gets ome amountof money because of the sale of its equity. “The Essar Oil debt will also now move to another organisation, which will probably be a better risk given the dept that they have of operations.”

Chanda Kochhar, MD & CEO, ICICI Bank, said ultimately the debt of Essar Oil will become a non-Essar Group exposure, and so, in a way, almost a little over 50% of ICICI Bank’s exposure to the Essar Group either gets paid
or gets transferred to an on-Essar company.

Last week, Rosneft and an investment consortium led by Trafigura signed agreements to acquirea 98% stake in Essar
Oil for Rs 72,800 crore and to pay Rs13,300 crore for acquisition of Vadinar Port.

Meanwhile, most private banks have sold their exposure to Essar Steel to asset reconstruction companies at a discount of more than 50% and most PSU banks have declared Essar Steel as a nonperforming asset in the last few quarters. “Hence, such a large de-leveraging would be positive for Essar Group lenders, in our opinion,” it said.

According to a Kotak Institutional Equities report, Indian banks have become very forceful in addressing the problem of bad loans and Indian promoters may have little option but to sell profitable assets to reduce debt. VTB, a Russian bank, will finance around R26,000 crore of Essar Oil’s debt as part of the deal, which will further reduce Indian banks’ exposure to Essar Group.

Essar Steel had, at a recent meeting, requested banks to convert R12,200 crore of loans into preference capital and
equity shares. While R9,000 crore was sought to be converted into preference shares, to be redeemed after 12-18 years, the remaining R3,200 crore, the company requested be converted into common equity.

For the remaining R31, 800 crore, the company has sought a prolonged repayment period. Bankers told FE
such a deep restructuring proposal, if approved by the consortium,would amount to a haircut of around 28%.

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