Deal to help banks clean up books, but Essar has many debts to pay

The Essar Group will use the proceeds of the Essar Oil stake sale to halve its overall debt to about ₹44,000 crore, bringing relief to its leading creditors SBI and ICICI Bank.

The Essar Group will use the proceeds of the Essar Oil stake sale to halve its overall debt to about ₹44,000 crore, bringing relief to its leading creditors SBI and ICICI Bank.

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

The ₹88,000-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.

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 ₹101,465 crore.

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

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

There are at least 30 banks that have lent to Essar Steel. Four — Axis Bank, HDFC Bank, Federal Bank and ICICI Bank — have sold some of their loans to Edelweiss ARC, retaining working capital components.

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 deleverage their stressed balance sheets.”

Some of the group’s debt has also been via private equity funds which have terms and covenants including approvals for sale of assets.

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,” said a banker who has been negotiating with the group.