Essar to deleverage Rs 1.25 lakh cr debt if its offer for Essar Steel is accepted

Ruia-family owned Essar Group would deleverage about Rs 1.25 lakh crore of debt - the largest by any corporate if its offer to repay lenders of Essar Steel in full is accepted, company sources said. Last week, the Committee of Essar Steel Creditors picked world's largest steelmaker ArcelorMittal's Rs 42,000 crore takeover offer over the company promoter's Rs 54,389 crore proposal to pay off all of the lenders' dues.

Essar plans to legally challenge the decision as it believes its offer would ensure 100 per cent recovery for lenders while accepting ArcelorMittal's offer would entail a haircut, sources said.

Sources said Essar Group had so far used USD 650 million (about Rs 4,200 crore) from the sale of Aegis US operations, Rs 72,000 crore from sale of Essar Oil to Russia's Rosneft and partners, Rs 2,000 crore from sale of Aegis and Rs 2,400 crore from sale of Equinox to deleverage group debt.

If the offer for Essar Steel is accepted, the deleveraging would total to Rs 1.25 lakh crore, they said. This is over 85 per cent of total group liabilities. Essar invested Rs 1.2 lakh crore -- the highest by any corporate in recent times -- between 2010 and 2015 in building world-class assets in energy, infrastructure, metals and mining, and services sector.

With the completion of its investment and deleveraging programmes, Essar is growing its substantial portfolio of businesses, sources said, adding revenues of Essar portfolio companies presently stand at Rs 80,000 crore. Essar, they said, is a leaner, smarter and wiser corporate with a lighter balance sheet.

Insisting that banks that lent to Essar did not lose money, they said loans are being serviced and more than Rs 20,000 crore has been paid to Essar Steel lenders by way of interest. The quality of assets created by Essar is attracting aggressive bids from high profile players and will help banks recover their dues without a haircut, they said.

For better management of its portfolio of businesses, Essar has transitioned to a fund-led structure, investing long-term capital into the portfolio companies and holds 100 per cent stake (largest equity holding among peers) in all its investments. Sources said Essar has brought global investors who have infused over USD 32 billion in FDI demonstrating the quality of assets it builds and the quality of management they have.

These include stake sale in Vodafone-Essar (USD 18 billion of value created), stake sale in Aegis in two tranches (USD 910 million of value created), stake sale of Essar Oil (USD 12.9 billion of value created) and stake sale of Essar Telecom Tower Ltd (USD 360 million of value created).

Sources insisted that in each of these cases, the group exited at the right time, on its own terms, at globally compelling valuations. Essar Group, they said, has invested upwards of Rs 200,000 crore (of which Rs 120,000 crore was invested in 2010-16) in setting up world-class facilities in steel, power, ports and oil and gas.

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The assets included 10 million tonnes of integrated steelmaking facility, 20 million tonnes of refining capacity and 3,500-strong petrol pump network (which is now owned by the Nayara Energy), 4,800 MW of power capacity as well as a 465-km transmission network and over 150 million tonnes of ports capacity.