Essar needs to repay LIC to get approval for Rosneft deal

An approval from Essar Oil’s lenders, including LIC, is a pre-requisite for the transaction to go through, according to Indian rules.

Life Insurance Corp of India (LIC) will clear Rosneft PJSC’s $12.9-billion acquisition of Essar Oil only after the Essar group pays a part of its dues to the insurer, four people with direct knowledge of the matter, including an LIC official, said.

The Essar group signed a deal with Rosneft, United Capital Partners and Trafigura Group Pte. in October to sell 98% in Essar Oil.(HT File Photo)

An approval from Essar Oil’s lenders, including LIC, is a pre-requisite for the transaction to go through, according to Indian rules.

Essar, through two of its group companies, owes at least Rs 2,300 crore to LIC. The state-owned insurer wants Essar to repay its loans or at least pay part of loan so that LIC can classify this debt as a standard asset in its books, said one of the four people cited earlier on the condition of anonymity.

“We wish to make it clear that LIC is in favour of the deal, however, there are concerns to be addressed,” a spokesperson for LIC said in a emailed statement. “LIC has conveyed the concerns to Essar group and Roseneft in a joint meeting. LIC has been following with them through letters but we are yet to get response addressing our concerns.”

The Essar group signed a deal with Rosneft, United Capital Partners and Trafigura Group Pte. in October to sell 98% in Essar Oil. The deal was signed at the Brics (Brazil, Russia, India, China, South Africa) summit in Goa in the presence of Prime Minister Narendra Modi and Russian President Vladimir Putin. The proceeds from this sale were expected to help the group reduce its debt, which director Prashant Ruia had put at around $13.5 billion (Rs 86,400 crore).

The deal which was to be completed by March has been delayed because some lenders are yet to approve the acquisition. Reuters reported on Thursday that apart from LIC, five other institutions - IDBI Bank, Punjab National Bank, Syndicate Bank, Indian Overseas Bank, IFCI Ltd – have held up the deal. Reuters also said that Syndicate Bank and Indian Overseas Bank were close to approving the deal, citing people it didn’t identify.

LIC’s key worry stems from the non-Essar Oil part of debt owed to it.

After the deal is closed, some part of the liability will go to Rosneft and Transfigura since they will become the owners. There is no guarantee from Essar how it will repay the other parts of its debt, the second of the four people cited earlier said, declining to be identified.

That’s the key reason why other lenders are taking a long time to give approvals. Debt talks were complicated by the fact that some lenders were also owed money by other Essar group firms, Reuters reported. Essar Steel, for instance is negotiating with lenders to restructure debt.

Essar had first offered to pay LIC immediately after the deal closure. Now it is prepared to pre-pay LIC if required to move forward the deal, said two other people (different from the four cited in the first instance) aware of the matter on condition of anonymity. “Informally, other lenders, are saying that Essar pay them money in advance. In a couple of cases, Essar will pay them before the deal is completed,” said one of the two people.

However, the first person cited in the story, who is directly involved in negotiations, said a written offer conveying Essar’s willingness to pre-pay has not been made to LIC.

“The completion of the transaction was conditional upon receiving requisite approvals and satisfaction of customary conditions. The parties are working towards obtaining the requisite approvals to complete the transaction. We are hopeful that the deal will be completed in the upcoming few weeks,” an Essar group spokesperson said in an emailed response.

Rosneft didn’t reply to an email seeking comments.