There is no let-up for Essar Group. The group that fought many a bruising battle over the last few decades continues to count its misfortunes. Essar House, the imposing headquarters of the group that stood witness to a multitude of Derbies at the Mahalakshmi Racecourse, just a stone’s throw away, now watches in dismay its own unfinished race. As horses gallop for their day in the sun, the Indian multinational giant is feeling 'abandoned' among the laggards.
The global recession of 2008 wasn’t exactly the fountainhead of its woes. Controversies and rivalries were always part of the group, since its inception. The collapse of export markets and commodity prices in the aftermath of the downturn rattled the group. Listing, de-listing, merging and demerging businesses, Essar tried every other financial trick possible, but the mammoth debt at the group level forced it to exit oil, BPO and telecom sectors, some making handsome profits only to be swallowed by lenders, mostly foreign. Its dreams of growing big in steel, power and ports sectors remained on the drawing board. While most of its global expansions, especially in the oil and steel sectors, were ill-timed, its exit from oil business couldn’t have come at a better time as India prepares to move away from the polluting fuel to all electricity-driven vehicles by 2030 and electric locomotives by 2020.
Even while making the clean $12.9-billion exit by selling the oil refinery and terminal at Vadinar (Gujarat), in close proximity to Reliance Industries (RIL)’s Jamnagar refinery, to Rosneft, Essar has made life tough for RIL and the state-owned oil companies by introducing the Russian giant. Will the government keep its word of dumping diesel cars and trains? The Russian government-owned Rosneft is betting that India won’t. After Daiichi and Docomo, it can’t afford another dud investment here.
Essar Oil’s sale brought cheer to Indian lenders, whose debt worth $5 billion were transferred to Rosneft in India’s biggest debt transfer ever. But Essar’s plans to bid for Essar Steel, currently facing bankruptcy proceedings at National Company Law Tribunal, have suffered a huge blow as the government quickly reworked the Insolvency and Bankruptcy Code and barred all ousted promoters and their relatives from regaining control of the insolvent companies. The Ordinance, which keeps away all unscrupulous promoters who are trying to buy back their assets paying a fraction of what they originally owed lenders, is like a proverbial 'nail' for Essar. The government doesn’t want to be seen supporting crony capitalism. It doesn’t want the promoters who caused irreparable losses to lenders to be the beneficiary of the very asset that they have rendered non-performing at a reduced price. Essar Steel’s debt stands at Rs 45,000 crore, most of which became non-performing a year ago.
Essar’s operations in power and ports are relatively small, and face tough competition from Gautam Adani’s Adani Group, among others. If the steel business slips away, Essar’s shipping operations that thrive on captive business will find it tough to survive in the otherwise trying conditions globally.
“The worst is now behind us,” said a smiling Prashant Ruia, Essar’s director, on August 22, 2017, soon after signing the Rosneft deal. His immediate priority was to submit a resolution plan for the steel company and retain it at any 'cost' (read reduced cost). The government has given it a royal snub.
The writer is editor, DNA Money. He tweets @AntoJoseph
