The Ruias have maintained that the deal with Rosneft will help the Essar group repay its loans to banks. But with Essar Steel and Essar Power in doldrums, the amount received by Essar in the all-cash deal might not be enough to repay all of ts oustanding debt totaling over Rs 1 lakh crore to various banks.
Here are the five major implications of this deal
Here are the five major implications of this deal
1. Essar's sale price is Rs 40,000 crore more than its investment in the refinery: According to estimates, the Essar Oil refinery at Vadinagar in Gujarat has seen investments by the Ruias worth Rs 33000 crore. Now they get Rs 73,000 crore from Rosneft from its sale. This means a gain of Rs 40000 crore for the Ruias, the promoters of Essar, on the sale of their refinery. Essar also gets Rs 13,300 crore from the sale of its port facilities to the Russians.
2. Could Help Wipe Off 10% of NPAs In Indian Banks: With banks Non Performing Assets (NPAs) at Rs 5.8 lakh crore, the sale of the refinery, retail outlets and the port to the Russians could wipe off 10% of the Non-Performing Assets (NPAs) of the Indian banking system, according to Alpesh Mehta of Motilal Oswal Securities.
3. Will Help Resurrect Fortunes of Essar Steel: India’s steel making industry has been in the doldrums owing to plummeting global prices of iron ore. With the industry now showing signs of revival, the all-cash deal with the Russians could help the Ruias revive Essar Steel, which also happens to be the biggest defaulting company of the Essar group.
4. Wouldn’t help Essar repay Indian banks: According to a Credit Suisse report in 2015, the group of debt of Essar exceeds Rs 1 lakh crore. Essar, meanwhile, owes money to three kinds of lenders: public sector banks, private Indian banks and global banks for its overseas debt. While the amount may be sufficient to settle the debts of its foreign lenders, public sector banks might still have to sell Essar assets at cheap rates to recover a part of their loans.5.
5. Complicates Relations With Washington: Rosneft is one of the five listed energy companies that were sanctioned by the US Department of Treasury in 2014. The sanctions were imposed after the US accused Moscow of trying to destabilise Ukraine. The sanctions were meant to severely impede the future prospects of Russia’s oil and gas exploration efforts. The Essar deal helps Rosneft get a good deal even while being under US sanctions.
5. Complicates Relations With Washington: Rosneft is one of the five listed energy companies that were sanctioned by the US Department of Treasury in 2014. The sanctions were imposed after the US accused Moscow of trying to destabilise Ukraine. The sanctions were meant to severely impede the future prospects of Russia’s oil and gas exploration efforts. The Essar deal helps Rosneft get a good deal even while being under US sanctions.