Essar Oil owes Indian banks Rs 40,000 cr, but company to pay back just Rs 4,000 cr to lenders; check out justification

By: and |
Mumbai | Published: August 22, 2017 9:21:37 AM

EOL owes Indian lenders close to Rs 40,000 crore; the exposure to be transferred to Rosneft’s books.

Indian banks, Essar Oil, Essar Group, sale of Essar oil, Rosneft-led consortiumEssar Group. (image: PTI)

Indian banks will be repaid only Rs 4,000 crore or $600 million of the repayments of Rs 36,000 crore ($5.6 billion) that the Essar Group intends to make to lenders following the sale of Essar Oil (EOL) to a Rosneft-led consortium. While EOL owes Indian lenders close to Rs 40,000 crore, senior executives at State Bank of India (SBI) said this would not be fully repaid. Instead, the exposure would be transferred to Rosneft’s books. As of now, some smaller banks and Life Insurance Corporation, which had initially withheld their no-objection certificates for the transaction, are being repaid. Among the lenders to Essar Oil are SBI, Punjab National Bank, ICICI Bank, IDBI Bank, Axis Bank, Yes Bank, LIC and a couple of other insurers. The Essar Group management said in a release that in addition to the $600 million it repays Indian banks, Essar Energy will repay loans about $5 billion (Rs 32,000 crore) to lenders of Essar Global, the holding company for EOL.

However, the management did not specifically name these lenders. Essar Global is a Mauritius-based company. Prashant Ruia, MD and group CEO, Essar Global, said at a press conference that Indian lenders were receiving just about 10% of the amount owed to them since this was the agreement reached between the banks and the company. Ruia said he was not sure the banks want to more of the exposure repaid.

“EOL has Vadinar Port, Vadinar Power which have done extremely well and met all its commitments. The lenders have elected to stay with the company and this exposure. So whether that will get repaid or not is a decision the new shareholders will make,” Ruia said. The Essar Group has struck a $12.9-billion deal with Rosneft and Trafigura-UCP consortium to sell 98% of EOL. The transaction will bring down its debt by around Rs 70,400 crore or $11 billion. Of the enterprise value of $12.9 billion, the debt component is $ 5.4 billion.

According to Capitaline data, the total outstanding shares of EOL were 151.26 crore as on February 9, 2016, the last day of trading before the company was delisted. Going by the equity value of $7.5 billion, the value per share works out to Rs 336.67 ($4.96), a 28% premium over the last traded price of Rs 262.60. The transaction will see EOL, Vadinar Oil Terminal and Vadinar Power Company being taken over by Rosneft and Trafigura-UCP consortium.

In October 2016, Essar Energy Holdings and Oil Bidco (Mauritius) had agreed to sell 98.26% stake of EOL. Rosneft, via its subsidiary Petrol Complex, acquired a 49.13% stake and the Trafigura-UCP consortium (through Kesani Enterprises Company) acquired an equal stake. The remaining 1.74% stake continues to be held by retail shareholders.

The Rosneft consortium will get EOL’s 20 million tonnes per annum Vadinar Refinery, its pan-India network of over 3,500 retail outlets, as well as the associated refinery infrastructure. The purchase includes the Vadinar Port with a capacity of 58 million tonnes dispatch and storage facilities and the Vadinar power plant, a 1,010 MW multi-fuel unit that supplies both power and steam to the Vadinar refinery.

Ruia said that with the completion of the deal the group has completed its monetisation programme. “With the substantial deleveraging of the balance sheet and completion of our capex programme, we now look forward to a period of growth in our wider portfolio of businesses,” he said. Chanda Kochhar, managing director & CEO, ICICI Bank, welcomed the sale of EOL to the Rosneft-led consortium. “The deal also underscores the keenness of foreign investors to enter India, the fastest-growing large economy in the world. This transaction reduces ICICI Bank’s exposure to the Essar Group by about 50%,” Kochhar said.

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