Ruias' stake sale deals miss March-end deadline

Essar Oil-Rosneft, Farallon-Essar Steel deals await lenders' approval

Two Essar group firms — one in the oil refinery business and the other in steel — have missed the March-end deadline to sell stakes, putting pressure on the promoters as well as lenders to bring the financial metrics of the group back on track in the new financial year.
 
On Friday, the Essar group said its $13-billion stake sale deal in profit-making Essar Oil to Russian oil major Rosneft would take more time and go beyond the March 31 deadline set earlier. 
 
At the same time, bankers said, private equity firm Farallon Capital’s plan to pick a 26% stake in Essar Steel for Rs 1,700 crore is awaiting lenders’ approval.
 
Both transactions are important for the group, which is trying to bring down its Rs 88,000 crore debt by half. 
 
An Essar group executive said the company would complete the Rosneft deal in the next few weeks and had offered to pre-pay some Indian lenders that had earlier objected to the Rosneft deal. 
 
“Approval from the large Indian banks is already in place. The group is in discussion with Life Insurance Corporation and a few smaller lenders with a proposal to pre-pay its entire loan as the deal is closed. The combined exposure to these smaller lenders is around $150 million and approvals from them are under process,” said an official close to the development. 
 
The Essar Oil transaction was signed in the presence of Prime Minister Narendra Modi and Russian President Vladimir Putin in Goa in October last year, showing the support of both governments to the transaction. The deal was also touted as India’s largest foreign direct investment transaction.

 
Yuri Soloviev, first deputy chief executive officer of Russia’s VTB Bank, lenders to Rosneft, said the completion stage of the Essar deal would start on March 31. 
 
“We hope to finish it this week; it will take 19 days to settle all the payments,” Soloviev told reporters, adding that the deal required approval from 18 Indian banks.  
 
The deal includes the sale of Essar Oil’s 20 million tonne refinery in Gujarat and 3,300 retail outlets. The Russian major roped in oil-trading firm Trafigura and private investment group United Capital Partners for the deal. The consortium is set to pay an additional of $2 billion for acquisition of Vadinar Port, too. 
 
On the Farallon deal, a banker said after the arrest of former IDBI Bank Chairman Yogesh Agarwal, the lenders were reluctant to take decisions.
 
The banks are awaiting new bad-loan guidelines from the Reserve Bank of India and have put all recast proposals on hold. Even after they clears the proposal, bankers want the Overseeing Committee to give the nod. 
 
The Essar Steel deal involves State Bank of India converting its loans into 30% equity in the ailing company. 
 
Union Finance Minister Arun Jaitley has told bankers they will not face prosecution for decisions taken in commercial interests which prove “erroneous” later.
 
No tax hurdle
 
Essar executives say the Rosneft deal will not attract capital gains tax even if delayed beyond March 31. According to new provisions of the India-Mauritius tax treaty, all such transactions will be protected only till the end of the current financial year. However, in an earlier statement, the company had clarified existing investments made before April 1, 2017, had been grand-fathered and would not be subject to capital gains tax in India, irrespective of the timing of subsequent disposal. Essar is holding shares in Essar Oil via its Mauritius-based entities.