RBI directive banning sale, leaseback of assets by firms hits sale
Essar Steel, which was to sell assets worth Rs 11,200 crore by March-end to retire its debt, will miss the deadline following a Reserve Bank of India directive to ban sale and leaseback of assets.
The sale of assets by Essar Steel excluded the sale of a strategic stake in the company by the promoters and the sale of a 49 per cent stake in the Essar Oil refinery.
Essar Steel was planning to sell and leaseback its slurry pipelines and coke oven in 2015-16 to reduce its debt of Rs 30,500 crore, ahead of a deadline set by lenders. The banks would now have to make provisions for the steel company's debt in the March quarter, a banking source said.
"The RBI recently issued guidelines governing sale and leaseback transactions by corporates, which effectively restricts corporates from undertaking monetisation of assets through this mechanism. The company is, therefore, evaluating alternatives to achieve the reduction of liability," an Essar Steel spokesperson said.
In November, the Ruias had hired SBI Caps and ICICI Securities to sell a stake in the company itself. But bankers said the strategic stake sale in Essar Steel would take time because current valuations were not attractive. In February, the Essar group sold real estate in the Bandra-Kurla Complex for Rs 2,400 crore to RMZ and leased it back.
The group was also asked by Standard Chartered Bank to repay loans worth $2.5 billion by March and the Ruias have announced the sale of a 49 per cent stake in Essar Oil to Rosneft in an all-cash deal worth $2.8 billion. The Rosneft deal is imminent and will be the next transaction the group closes.
Essar Steel is not alone in selling assets to retire debt. Many Indian companies, including the Jaypee group, Reliance Infrastructure and the Avantha group, have sold assets or are in the process of selling them in the current fiscal year. The debt of these companies has ballooned as they went on an expansion spree in the last few years. With demand not picking up, these companies were unable to repay loans.
Essar Steel has also availed of the Reserve Bank of India's 5/25 scheme under which the banks extended its loans by another 25 years with an option of refinancing every five years.
The company has a 10 million tonne steel manufacturing facility at Hazira and iron ore beneficiation and pelletisation facilities in Paradeep of 12 million tonnes and at Visakhapatnam of 8 million tonnes. The company also owns and operates two iron ore slurry pipelines - one each in Odisha (Dabuna to Paradip) and Andhra Pradesh (Kirandul-Visakhapatnam).
These pipelines transport iron ore slurry from iron ore mines in Dabuna and Kirandul to the pellet plants located near the Paradip and Visakhapatnam ports.
The company has already sold off one of its slurry pipelines and the coke oven to reduce its debt and now plans to sell other assets.
In an earlier interview with this paper, Essar Steel had blamed falling steel prices, lack of gas supply from the Krishna-Godavari basin, and damage to its Kirandul-Visakhapatnam slurry pipeline by Naxals in October 2011 for its reversal of fortunes.
The lack of gas supply brought down the capacity of the company's Hazira plant to 40 per cent and caused a Rs 4,500 crore hit on Essar Steel's finances.
Besides, delays in receiving environmental clearance for the company's second slurry pipeline in Odisha resulted in non-availability of pellets for the ramp-up of the Hazira steel plant and had an impact of another Rs 2,500 crore on the company.
While Essar Steel is selling assets, the company has emerged as the top bidder for an iron ore mine in Odisha, piping JSW, Tata Steel and JSPL. This mine will take care of half of its raw material needs. The company bid 45 per cent more than the reserve price.
RUIAS' ASSETS UP FOR SALE
• Rs 11,200 cr assets by Essar Steel Pending
• 49% stake sale in Essar Oil to Rosneft Pending
• Strategic stake sale in Essar Steel Pending
• Rs 2,400 cr worth Realty in Mumbai in Feb Sold
Essar Steel, which was to sell assets worth Rs 11,200 crore by March-end to retire its debt, will miss the deadline following a Reserve Bank of India directive to ban sale and leaseback of assets.
The sale of assets by Essar Steel excluded the sale of a strategic stake in the company by the promoters and the sale of a 49 per cent stake in the Essar Oil refinery.
Essar Steel was planning to sell and leaseback its slurry pipelines and coke oven in 2015-16 to reduce its debt of Rs 30,500 crore, ahead of a deadline set by lenders. The banks would now have to make provisions for the steel company's debt in the March quarter, a banking source said.
"The RBI recently issued guidelines governing sale and leaseback transactions by corporates, which effectively restricts corporates from undertaking monetisation of assets through this mechanism. The company is, therefore, evaluating alternatives to achieve the reduction of liability," an Essar Steel spokesperson said.
In November, the Ruias had hired SBI Caps and ICICI Securities to sell a stake in the company itself. But bankers said the strategic stake sale in Essar Steel would take time because current valuations were not attractive. In February, the Essar group sold real estate in the Bandra-Kurla Complex for Rs 2,400 crore to RMZ and leased it back.
The group was also asked by Standard Chartered Bank to repay loans worth $2.5 billion by March and the Ruias have announced the sale of a 49 per cent stake in Essar Oil to Rosneft in an all-cash deal worth $2.8 billion. The Rosneft deal is imminent and will be the next transaction the group closes.
Essar Steel is not alone in selling assets to retire debt. Many Indian companies, including the Jaypee group, Reliance Infrastructure and the Avantha group, have sold assets or are in the process of selling them in the current fiscal year. The debt of these companies has ballooned as they went on an expansion spree in the last few years. With demand not picking up, these companies were unable to repay loans.
Essar Steel has also availed of the Reserve Bank of India's 5/25 scheme under which the banks extended its loans by another 25 years with an option of refinancing every five years.
The company has a 10 million tonne steel manufacturing facility at Hazira and iron ore beneficiation and pelletisation facilities in Paradeep of 12 million tonnes and at Visakhapatnam of 8 million tonnes. The company also owns and operates two iron ore slurry pipelines - one each in Odisha (Dabuna to Paradip) and Andhra Pradesh (Kirandul-Visakhapatnam).
These pipelines transport iron ore slurry from iron ore mines in Dabuna and Kirandul to the pellet plants located near the Paradip and Visakhapatnam ports.
The company has already sold off one of its slurry pipelines and the coke oven to reduce its debt and now plans to sell other assets.
In an earlier interview with this paper, Essar Steel had blamed falling steel prices, lack of gas supply from the Krishna-Godavari basin, and damage to its Kirandul-Visakhapatnam slurry pipeline by Naxals in October 2011 for its reversal of fortunes.
The lack of gas supply brought down the capacity of the company's Hazira plant to 40 per cent and caused a Rs 4,500 crore hit on Essar Steel's finances.
Besides, delays in receiving environmental clearance for the company's second slurry pipeline in Odisha resulted in non-availability of pellets for the ramp-up of the Hazira steel plant and had an impact of another Rs 2,500 crore on the company.
While Essar Steel is selling assets, the company has emerged as the top bidder for an iron ore mine in Odisha, piping JSW, Tata Steel and JSPL. This mine will take care of half of its raw material needs. The company bid 45 per cent more than the reserve price.
RUIAS' ASSETS UP FOR SALE
• Rs 11,200 cr assets by Essar Steel Pending
• 49% stake sale in Essar Oil to Rosneft Pending
• Strategic stake sale in Essar Steel Pending
• Rs 2,400 cr worth Realty in Mumbai in Feb Sold
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