 "Employees walk past an Essar Group logo outside their headquarters in Mumbai")
Essar Steel lenders have approved a debt restructuring plan of the company under which banks and financial investor Farallon Capital will take majority equity control. This will also be the largest debt restructuring in recent years, bankers said.
Farallon Capital will pick up 26 per cent stake in the firm, while lenders led by State Bank of India will convert part of their loans to get a 34 per cent stake in the steel maker. The Ruias will hold the first right of refusal on the shares held by banks and Farallon, and may even look at listing the shares to give an exit option to new shareholders, said a banker.
An official spokesperson of Essar Steel declined to comment.
Private equity firm Farallon Capital’s role would be limited to being a ‘financial investor’ and it would invest Rs 1,700 crore in the firm by way of fresh capital. The Ruias, who currently hold 100 per cent stake in the unlisted company, will see their stake falling to 40 per cent and run the day-to-day operations of the firm, said a banker asking not to be quoted. The banker added the account would be treated as a non-performing asset for the next 12 months to monitor the performance.
At present, lenders are working on the estimated haircut, additional investments and change in corporate governance clauses for enhancing control over the ailing steel firm. Sources, however, declined to indicate the timeline for completing the transaction. The equity stake held by banks would help them get a say in any future plans of the company, including sale of assets or fund-raising, a banker said. The restructuring of Essar Steel’s debt will be a shot in the arm for banks at a time when they have been facing large scale stress in their loan portfolio. Sources said the package will also enable banks to regularise the account in their books and upgrade the same to standard category in future.
This would be the second big-ticket sale of assets by the Ruia group this fiscal after it sold 98 per cent stake in Essar Oil to Rosneft of Russia for close to $13 billion. With Essar Oil sale, the Ruias had reduced the group debt by half from Rs 88,000 crore. The group had earlier sold its 33 per cent stake in Vodafone India for $5 billion in 2011.
Last year, following pressure from banks, the Ruias sought to sell part of its stake to other companies and had appointed SBI Capital Markets but was unable to find any takers.
In an interview with this paper in October, Prashant Ruia, had said the worst was behind Essar Steel, which would now become the group’s largest business in terms of revenue, profit and assets. “The business is now Ebitda positive and our production volume was up about 50 per cent during the first half of FY17.” In FY15, Essar Steel accounted for around half of the group's combined gross debt, around a fifth of the group's net sales and 37 per cent of all group assets. It generated an Ebitda of Rs 6,000 crore in FY15 and made a profit of Rs 467 crore on revenues of Rs 14,600 crore (see chart). With the imposition of minimum import price (MIP) on steel products mainly from China, many struggling steel companies managed to salvage their operations.
