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How bankers drove the deal, to clean up their loan books

The Essar Group will use the proceeds of the $12.9-billion (Rs 86,400 crore) sale of Essar Oil to halve its overall debt to about Rs 42,000 crore, bringing relief to leading bankers SBI and ICICI which have lent heavily in the past

business Updated: Oct 16, 2016 22:31 IST
Essar Group
An employee walks inside the premises of an oil refinery of Essar Oil, which runs India's second biggest private sector refinery, in Vadinar in Gujarat.(Reuters File Photo)

The Essar Group will use the proceeds of the $12.9-billion (Rs 86,400 crore) sale of Essar Oil to halve its overall debt to about Rs 42,000 crore, bringing relief to leading bankers SBI and ICICI which have lent heavily in the past.

But bankers to whom HT spoke to say this is easier said than done.

The Rs 84,000-crore debt of Essar Group is spread across various categories – creditors, bondholders, working capital lenders, private equity funds that have lent at the holding company level, and to Iran.

“So it isn’t only term lenders that the group has to pay back. It would take a judicious mode to settle among the various categories. It will take at least six months (to split the proceeds),” said a senior banker, who asked not to be named.

Like the diverse businesses that Essar has interests in, the debt is also distributed widely across the conglomerate structure that uses a holding company format, with companies registered in tax havens. Global financial major Credit Suisse issued a report earlier titled ‘House of Debt’ that pegged the group’s debt as of March 2015 at an even higher Rs 101,465 crore.

Adding to all this uncertainty is the fact most group companies are delisted, which means financials need not be disclosed publicly.

SBI accounts for about 40% of the total group debt, largely in Essar Steel. SBI exposure in the steel firm is about Rs 9,000 crore, followed by Punjab National Bank, IDBI Bank, ICICI Bank and Axis Bank who have about Rs 5,000 crore worth of exposure. There are at least 30 banks that have lent to to Essar Steel. Four banks -- Axis Bank, HDFC Bank, Federal Bank and ICICI Bank — have sold some of their loans to Edelweiss ARC, retaining working capital components.

Essar Power has a debt of about Rs 20,000 crore, Essar Oil about Rs 27,000 crore and about $2 billion (Rs 13,400 crore) is owed to Iran for oil dues.

Reflecting bankers’ relief with the Essar Oil sale, ICICI Bank MD Chanda Kochhar said: “This is a significant step in deleveraging the balance sheets of Indian corporates. ICICI Bank has been closely working with companies including the Essar Group to help them de-leverage their stressed balance sheets.”

Some of the group’s debt has also been via private equity funds who have terms and covenants including approvals for sale of assets. Early this year the group had differences with IDFC private equity on the sale of the Vadinar power plant. The group had raised Rs 350 crore from this PE. Similarly it also owes about $3.5 billion to Stanchart private equity fund.

The group has already agreed to a refinance agreement with Russia bank VTB for $3.5 billion.

“The entire debt and where it is housed is very complex to unravel and settle. It will take time. But the Ruias have been serious this time as they went for a 98% sale of Essar Oil to show their commitment to reduce debt,” said a banker who has been negotiating with the group.