ICICI Bank Gains On Rosneft Deal, Lenders Feel Relief

On Saturday the Ruias of the Essar group signed a binding

deal with Russias Rosneft, United Capital Partners and
Trafigura Group to sell 98% in its most priced asset, the 20
million tons per annum Vadinar refinery and Vadinar port in
Gujarat. ICICI Bank has been closely working with various
companies, including the Essar Group, to help them
deleverage their stressed balance sheets.
The deal took the ICICI Bank share price to the hike of almost
6% today.
According to a report, the proceeds of the sale will be utilized to repay loans of both
foreign and local lenders, amounting to around Rs 88,000 crore.
Chanda Kochhar, MD & CEO, ICICI Bank, said that they welcome the announcement of
the deal. This deal is the biggest ever foreign acquisition in India. It proves the charisma of
the Indian energy market to foreign investors as India is one of the fast growing fuel
consuming economies in the world. This deal is also an important step in the process of
deleveraging the balance sheets of Indian corporates. ICICI Bank has been closely
working with different companies, including the Essar Group, to help them deleverage
their stressed balance sheets. The Bank will continue working towards this objective with
others.
After Rosnefts deal to buy 98% of Essar Oil, the focus shifts to whether minority
investors of the Indian firm will gain from this transaction.
In December, these shareholders had tendered their shares in Essar Oils delisting
procedure. At that time, the SEBI passed an order stating that these shareowners should be
remunerated the difference between the transaction price with Rosneft and the final
delisting price.

On Saturday, at a press conference to announce the deal, Prashant Ruia, director at the
Essar Group, declared that the equity value of the deal was very much close to the
delisting price, meaning minority shareholders dont have much to gain.
On the other hand, proxy advisory firms have expected that small shareholders stand to
gain anything from Rs 94-125 per share, over the delisting price of Rs 262 per share.
J.N. Gupta, co-founder and managing director of Stakeholder Empowerment Services
(SES), a proxy advisory firm said that as per SEBI order, the company must pay the
differential sum to shareholders who tendered shares. The differential is calculated based
on delisting price and intrinsic value of shares in the current deal.
SES calculated the share price of the Essar-Rosneft transaction worth to be anywhere
between Rs 357 and Rs 388 per share. It has calculated this by deriving an equity value for
the deal by subtracting it from the enterprise value of the deal. A statement from the Essar
group said the Rosneft deal was completed at an enterprise valuation of Rs72,800 crore for
a 98% equity.
There is, however, a limitation to the calculation. It has established its calculations on the
last available annual report of Essar Oil and the numbers valid to March 2015. At that
time, the company had Rs17,612 crore in debt, according to the analysis and, thus, the total
share price could be in the range of Rs 357 to Rs 388 a share, that is, after adjusting for a
working capital of Rs4,451 crore.
Thus, the real equity valuation of the deal will be based on the debt of the firm on the day
it finalized the transaction. The latest publicly available numbers, which are also
unaudited, date to a year ago.
The other proxy firms also believe that SEBI must seek full disclosure of the deal-related
documents and evaluate the price paid by Rosneft and others. In any case, shareholders
will know this information in another week or so.
The SEBI order also said that the company or its promoters have to issue a public notice
within ten days of closing the deal with the details of the transaction, with the number of
shares to be purchased by Rosneft.

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Article Written by
Tanaya Nath