Looking much relaxed after the largest ever deleveraging exercise in India’s corporate history, Prashant Ruia, Director, Essar Group, feels the sale of Essar Oil signifies the ability of the group to add value to shareholders despite going through difficult times. When Essar Oil was delisted in 1995, the market cap was ₹2,000 crore, and with increased exit price for shareholder, the market cap is now ₹50,000 crore. It is a huge reward for the investors, he said. The new owners of Essar Oil will absorb 2,000 employees post the deal, Ruia told BusinessLine. Excerpts:
Do you think Essar has exited the oil sector when there are beliefs that renewables will make oil obsolete?
I think the oil industry still has a very strong future; at least for the next 30-40 years, oil will be an important part of the future. Renewables is of course good. It is going to add, especially in the power side, and may be in automotives in the longer time; but it will take a lot of time to replace oil as the primary source of energy. I’m not saying it will never happen; but it’s still a long time to go. And we have not exited refining; we are very much into it in the UK. We still believe in the oil and gas cycle and the refining business.
How much is Rosneft paying you for using the Essar brand?
They have currently decided to use the Essar Oil brand. Whatever fee Essar Oil was paying to the holding company, that will now be paid by Rosneft. It’s open-ended and they can decide how long they want to use it. We have not gone out with numbers on the fee paid. It is not very substantial and so it does not matter.
What is the progress on your steel business?
We are in the Insolvency and Bankruptcy Code process; there is not much for me to say. We have to follow the process. They have appointed insolvency resolution professionals; existing management continues. The entire process is 2-3 months away. I do not want to make this discussion to be on steel because we are in a court-driven process now and we have to respect the process, which will take 180 days and we are just in the beginning.
How much repayment will happen to Indian banks?
Out of the ₹70,000 crore we are repaying, ₹50,000 crore is for Indian banks and the rest will go to foreign lenders. We have not come out with numbers on the remaining debt, but we have said ₹70,000 crore is over 50 per cent of the overall debt. We believe that with the deleveraged balance sheet, we can sustain and grow going forward. Most of the banks’, including SBI, ICICI, Axis Bank and YES BANK, exposure to our group is down 50 per cent.
Do you have room to raise funds?
We are left with a room, but we do not need to; our capital expenditure programme has been completed; we have brought down our debt significantly. No corporate in India has brought down its debt this much. Of course, Essar Steel requires restructuring. But overall, we are in a strong position to reset and move forward. We have made significant investment and it is time to enjoy the fruits of the capital expenditure.
What is going to be the major growth drivers for you?
Our growth is linked to India’s progress. About 75-80 per cent of our investments are in India. Our growth in oil, telecom, steel are linked to what is happening in India. We believe that going forward, the growth will be quite good. If five years ago I had told that oil and gas would be worth of ₹50,000 crore, you would have laughed at me. If I had said the telecom business would be worth $18 billion — the valuation at which Vodafone was paid — you would have said ‘no way’ because the sector was going through tough times.The commodity businesses, including steel, iron ore and coal, were in difficult times; but they all are picking up.
Are thermal power plants in trouble?
The problem with thermal plants right now is that the demand is not sufficient compared with the new capacities that have come up. At some point of time, the demand will pick, and when it happens, the power plants that are idle or running below their rated capacity will start earning. Not so long ago, power prices were ₹5-6 a unit; now it has come down to ₹2.50 a unit. I do not think thermal will be replaced completely. I do not see too many investments coming into thermal power plants; but the plants that are in operation will sustain. Even in China, where renewables are growing at a good pace, the existing thermal units are sustaining and providing power to that country. I do not think you can replace 2,000MW of thermal power plants with renewables over night. It takes a long time.
Are you looking at an investment in renewables?
We are certainly looking at renewables as an opportunity for investment because we cannot grow further in thermal. Even renewables is growing through a lot of challenges right now. So we are weighing the pros and cons. We do not want to do anything in a hurry. The deal gives us sufficient fire power. Our balance sheet has been deleveraged significantly and we can look at our next phase of growth. We will focus on our existing portfolio, including resolving the Essar Steel problem. We have some liquidity left behind and the ability to raise money to grow business.
Any resolution in sight for the power projects stuck in Gujarat?
That question is for Adani, Tata and now of course (Subhash) Chandra (Essel Group Chairman). They are the leaders. They have 4,000MW. They are big. Whatever resolution they arrive at will apply to us. We are in the same boat.