$13billion deal for the Ruias of Essar: Lucky or unlucky? | business-news | Hindustan Times
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$13billion deal for the Ruias of Essar: Lucky or unlucky?

business Updated: Oct 15, 2016 16:58 IST
Suveen Sinha
Suveen Sinha
Hindustan Times
Essar

A view of an Essar Oil oil refinery in Vadinar, Gujarat. The Essar Group found itself buried under a debt mountain of debt and had to clear by selling Essar Oil.(Reuters file)

The Ruia brothers of Essar – Shashi and Ravi – believe that 13 is their lucky number. They once had their corporate headquarters on the 13th floor of an office building in Mumbai.

So it’s not sure whether today’s deal to sell Essar Oil to a foreign group led by Russia’s Rosneft , at $12.9 billion, will make them happy or sad. It is not $13 billion, but it’s not too far either.

They can take solace in the fact that it is the largest deal in which an Indian company has been acquired by foreign entities, and therefore the largest single inflow of foreign direct investment. Although it comes at a time the Ruias were under pressure to move the mountain of debt on their head, the deal reaffirms their knack for a good deal.

The Ruias are originally from Rajasthan. Their family was into construction. Their father, Nand Kishore, moved to Chennai to start a new business and set up a shipping and exports firm.

The brothers – Shashi is five years older – founded the Essar Group, its name taken from the first letter of Shashi and Ravi, in 1969, after their father died. In 1976, they became India’s first private group to buy an oil tanker.

The brothers moved to Mumbai in 1977 and made it their base. They shared an office building with Reliance in Nariman Point. They were lucky to get frequent advice from Dhirubhai Ambani, Reliance’s founder and father to Mukesh and Anil Ambani. However, what marks the two groups apart is that Shashi and Ravi did not fight and divide the businesses. They stayed together and, taking advantage of the opening up of India’s economy in the 1990s, entered steel, power, telecom, and oil refining.

It was not always a smooth sailing, as Essar Steel fell upon bad times in the 1990s and the sector went into a cyclical decline. In 1999, it became the first Indian company to default on a foreign loan when it could not pay $250 million to investors.

But now the Ruias have done the second deal in five years that gets them many billions of dollars.

Technically, the previous largest FDI was South Korea’s Posco putting aside $12 billion for a steel plant in Orissa. But since that project never got off the ground, the true contender to the title of the previous biggest would be Vodafone’s paying $10.9 billion for a 67% stake in Hutchison Whampoa’s mobile telephony business in India in 2007.

Interestingly, the Ruias were a big beneficiary of that deal. In 2007, they held on to their 33% stake in Hutchison Essar. They sold it to Vodafone four years later for $5 billion.

It is, therefore, a bit puzzling that the Essar Group found itself buried under a debt mountain of debt, which it had to clear by selling Essar Oil. It would not have been an easy decision. The oil refiner was set up under a fierce competition from Reliance, adding the saga many layers given that the Ruia brothers were once advised by Dhirubhai. So deep emotional investment can be assumed.

But many corporate stories are dramatic enough to become movie scripts. The Ruias will be hoping that today’s deal will propel them toward a happy climax.