(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Una Galani
HONG KONG Oct 14 (Reuters Breakingviews) - There are no
taboos in India's fight against bad debt. That would be the main
lesson from a sale of Essar Oil for up to $13 billion, including
$4.5 billion of debt, to Russia's Rosneft and others.
Two years ago, it was hard to imagine lenders turning the screws
on tycoons like the Ruia brothers to the extent that they would
sell off flagship assets to repay their dues.
The deal, as reported by Reuters and expected to be
announced on Oct. 15, would see Rosneft take a 49 percent stake
in Essar Oil, which owns the giant Vadinar refinery in Gujarat.
Another 49 percent would be sold to Swiss trader Trafigura and
Russian fund UCP. Restricting the Russian oil giant to a
minority stake may help ensure the Indian firm avoids U.S.
sanctions levied on Rosneft over Russia's role in Ukraine.
The sale of this relatively healthy company should help the
wider Essar Group, once viewed as too big to fail, pare its
debt. Credit Suisse analysts estimated one year ago that the
conglomerate had gross debt worth around 1 trillion rupees ($15
billion) and interest payments that outstripped operating
profits. Those figures excluded borrowings at the privately held
holding company to which Standard Chartered, the
emerging markets lender, has a big exposure. Essar Group has
since done some house-cleaning.
Creditors probably need to agree to any sale and will need
to get comfortable with dealing with a sanctioned entity. The
other potential hitch is that at the upper end, the mooted price
tag values Essar Oil's equity at a near-50 percent premium to
the $5.7 billion valuation at which the Ruias delisted the
company in December. At the time, the regulator said Essar might
have to compensate shareholders if Rosneft were to buy in at a
Cleaning up India's $140 billion mountain of bad debt is not
straightforward - but this deal would be a milestone.
On Twitter twitter.com/ugalani
- A group led by Russian oil major Rosneft will acquire
India's Essar Oil in a deal worth $12-$13 billion including
debt, Reuters reported on Oct. 13, citing two sources privy to
- Rosneft will get 49 percent and the two investors -
European trader Trafigura and Russian fund UCP - will hold
another 49 percent in equal parts, the sources said, adding that
the valuation included about $4.5 billion in assumed debt.
- The Indian firm is expected to announce the deal on
Saturday in Goa during a visit by President Vladimir Putin, who
will meet Indian Prime Minister Narendra Modi for a bilateral
- Essar Oil delisted in December. The company offered 262.80
rupees per share to its public shareholders, valuing the company
at 380 billion rupees ($5.7 billion).
- Essar Oil is part of the Essar Group, which is controlled
by the billionaire Ruia brothers.
- For previous columns by the author, Reuters customers can
- SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: bit.ly/BVsubscribe
(Editing by Peter Thal Larsen and Katrina Hamlin)