Reeling under debts, Ruias-promoted Essar Group intends to lower 67 per cent of its consolidated debt by using proceeds received from sale of 98.26 per cent stake in Essar Oil to Rosneft and its partners which was concluded on Monday
Essar has sold the stake for $12.9 billion.
The group has long term debt burden of Rs 1.35 lakh crore – long-term loan of Rs 1.05 lakh crore and working capital loan of Rs 30,000 crore at the holding company and group companies level.
Essar Group director Prashant Ruia said the debt reduction of Rs 70,400 crore was the largest in the history of corporate India, and the USD 12.9 billion sale of EOL as the biggest FDI in the country to date.
“With this deal we’ve completed our monetisation and deleveraging programme, which is the largest undertaken by any corporate in recent years in the country. We’ve substantially deleveraged our portfolio companies’ balance sheets. With the completion of our capex programme of over Rs 1.2 trillion (Rs 1.2 lakh crore), we now look forward to a period of growth in our wider portfolio of businesses,” Ruia said.
Essar Group founder Shashi Ruia said this landmark transaction and the resultant debt reduction will bring in a new phase of growth across the group portfolio.
Significantly, this deleveraging will have no positive impact on the company’s troubled steel venture which has gone to the National Company Law Tribunal after the Reserve Bank identified it along with 11 other companies for bankruptcy proceedings by banks.
When asked about this, Ruia said, “Essar Oil and Essar Steel are two separate legal entities and businesses and the law does not allow transfer of money from one account to the other.”
Giving a break-up of the debt repay, an Essar official said, “On closure of sale of Essar Oil to Rosneft and Trafigura-UCP consortium, Essar Energy will repay USD 5 billion to the lenders to repay at the holding company (Essar Holdings), USD 5.4 billion debt of Essar Oil, Vadinar Oil Terminal and Vadinar Power Company which has become non-Essar exposure (will be transferred to the new owners of EOL.)
“Further, about USD 600 million or Rs 4,000 crore will be used to repay domestic lenders (primarily LIC — Rs 800 crore — and other insurance companies) at the operating company level (Essar Oil, Vadinar Oil Terminal and Vadinar Power), taking the group’s overall debt exposure down by about USD 11 billion or Rs 70,400 crore.”
Domestic lenders have an exposure of around Rs 35,000 crore to Essar Oil, but they will get only Rs 4,000 crore from the payback as “they have elected to stay with the new owner”, Ruia said. Most of this USD 5 billion debt is from SBI, ICICI Bank, Axis Bank, IDIBI Bank and Yes Bank, while the total number of creditors is 19.
Of the USD 5 billion debt being transferred to Rosneft, about USD 4 billion are term loans and USD 1 billion working capital loans. But they’ll get around Rs 4,000 crore paid back from over Rs 35,000 crore of loans to Essar Oil, as they have “finally elected to stay with the new owner”, Ruia said.
Officials also said a part of the proceeds that flow into the accounts of the Ruias, which analysts peg at USD 1.9 billion, will be partly used to pay the premium that the promoter got through the sale to retail and other investors who tender their shares at the open offer within 60 days from today as per Sebi guidelines. “Those shareholders who tender their shares in the open offer will be paid back according to the margin from the deal as per Sebi’s buyback regulations,” Ruia said.
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