Losing steel arm to ArcelorMittal to hurt Essar India; revenue may fall 97%

Revenue hit of 96% is combined impact of earlier divestment in Essar Oil & losing control of Essar Steel

With ArcelorMittal finally getting control over Essar Steel, the Essar group will see its India revenues fall 97 per cent to just Rs 3,296 crore for FY19 compared to Rs 1.25 trillion (which was its peak) in 2014, according to filings with the ministry of corporate affairs.

A major share of the group’s India revenues for FY14 were contributed by its oil refining and steel business. The revenues for FY19 have been contributed mainly by three Indian firms — AGC Networks, Essar Ports and Essar Shipping — filings with the ministry show. 

Several firms of the group did not file annual accounts for FY19 and, hence, were not accounted for. The fall in revenues also saw a corresponding decline in the group’s debt, which declined to around Rs 3,400 crore at the end of March — excluding Essar Power and Essar Projects — from Rs 77,000 crore as of March 2014.

In the same period, the group firms’ combined net worth turned negative from around Rs 20,000 crore at the end of March 2014 to a negative Rs 1,650 crore at the end of March 2019. 

This excludes the figures for Essar Projects and Essar Power. Both these reported losses when they last filed their audited results for FY16 and the industry situation has only worsened since then.

Essar Steel contributed close to Rs 26,000 crore to the group’s India revenues till FY18. With the successful debt resolution of Essar Steel, a further Rs 47,000 crore of Essar group’s debt will be resolved and not be reflected in the group’s books, said a group official.

But what the group lost in India, it made up from its overseas business with its Stanlow Refinery now generating $8.6 billion of revenues for FY19. 

The group pegs its total global business revenues at $12 billion, including India’s ports, power and infrastructure businesses.

Essar Steel was among the first lot of 12 companies sent for debt resolution by Indian lenders in June 2017 after the Insolvency and Bankruptcy Code (IBC) was enacted. Of the 12 cases, only seven have seen a successful resolution. “Indian banks will recover almost 85 per cent of their loans in the Essar Steel case compared to an average haircut of 50 per cent in rest of the cases,” said a banking source.

Over the years, the group’s businesses in India shrunk after a debt fuelled expansion into multiple sectors such as telecom, oil refining, shipping, and steel. Since 2011, the group sold several assets, including its 33 per cent stake in Vodafone Essar for 

$5 billion, pocketing a hefty profit. In 2017, it sold its stake in Aegis, business process outsourcing outfit, for $300 million and its Bandra-Kurla Complex property for Rs 2,400 crore in April 2018. 

In August 2017, the group sold its biggest revenue generator — the Jamnagar refinery and oil retail outlets — to Rosneft of Russia for $12.9 billion (Rs 86,000 crore, including debt) and reduced group debt by half. 

In January, the Essar group announced that it repaid close to Rs 1.37 trillion debt by selling assets, mainly to Indian lenders. Its overseas holding company, Essar Global Fund, announced that it paid Rs 12,000 crore debt to Indian lenders, thus extinguishing its entire overseas debt.