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Standard Chartered said to seek sale of billionaire Ruia loans
[LONDON] Standard Chartered Plc and other creditors to India's billionaire Ruia brothers are seeking to sell off some of the about US$3.5 billion in loans extended to the Essar Group conglomerate's owners, people with knowledge of the matter said. Standard Chartered, ICICI Bank Ltd. and Axis Bank Ltd. approached Russia's VTB Group to gauge its interest in buying a portion of their loans to the Ruia brothers' holding company Essar Global, the people said, asking not to be identified as the information is private. Essar Global holds the tycoons' stakes in group entities including Essar Oil Ltd, Essar Steel and Essar Power Ltd.
Any negotiations could be hampered by the creditors' reluctance to offload the loans at a significant discount, according to the people. Standard Chartered has also told Essar Global it's considering appointing advisers to sell off some of its stakes in group companies if it doesn't quickly pay off part of the loan, three of the people said.
Earnings at Essar Group, founded by billionaires Shashi and Ravi Ruia, have been hurt by a fall in commodity prices, weak demand and lower capacity usage at its units. The conglomerate invested about $18 billion from 2008 to 2012 to add capacity for its operations including steel, oil and power.
The situation remains fluid, and the lenders haven't made a final decision about which course of action to pursue, the people said. Representatives for Axis Bank, ICICI Bank, Standard Chartered and VTB Group declined to comment. Essar Group has had a relationship with VTB Group since at least last year, when the Russian firm said it had opened a US$1 billion credit line for the Indian conglomerate.
OAO Rosneft, Russia's largest oil producer, signed a 10-year crude-supply deal with Essar Oil in July and said it intends to buy as much as 49 per cent of the Indian company, which operates the about 400,000 barrels-a-day Vadinar refinery.
Essar Global said in an e-mailed statement it "will be considering similar transactions for other assets as and when they are ready to attract investors," and any proceeds would be used to pay down debt. The US$3.5 billion borrowed from Standard Chartered, ICICI Bank and Axis Bank was invested in "creating state-of-the-art facilities in steel, oil and gas, power, ports, shipping, projects which form core sectors of Indian economy," it said.
"All the assets are newly-built, and we see significant growth potential in the value of equity invested as we operate these assets efficiently," Essar Global said. The company's model "has been to invest in greenfield projects and monetise these investments at an opportune time to unlock value."
For Standard Chartered, the Essar Global loans are emblematic of the bank's previous strategy of focusing on emerging markets such as India, a gamble that has left the bank saddled with delinquent loans. The company reported an unexpected quarterly loss on Tuesday as its Chief Executive Officer Bill Winters revealed plans to reduce positions in China and India, while expanding in large, fast-growing cities across developing nations.
For the September quarter, the bank more than doubled its loan impairments from a year earlier to US$1.2 billion, citing exposures to India and commodities.