October 14, 2016 / 2:57 AM / in 2 years

BREAKINGVIEWS-Essar sale points to no taboos in bad-debt fight

(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 higher valuation.

Cleaning up India’s $140 billion mountain of bad debt is not straightforward - but this deal would be a milestone.

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- 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 the deal.

- 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 summit.

- 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 click on


Editing by Peter Thal Larsen and Katrina Hamlin

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