Essar Oil to pay lenders soon after Rosneft deal
MUMBAI: Pushed by LIC, Essar Oil has given an unconditional undertaking to the institution and some of the lenders that their dues would be cleared within three days of the closure of its crucial deal with the Russian firm Rosneft.
These lenders had expressed their reluctance to approve the proposed acquisition of Essar Oil by Rosneft and other offshore investors till the dues are cleared.
On Friday, Essar communicated its decision to LIC, GIC and some of the banks which insisted on settlement of loan dues, a person familiar with the development told ET.
The unconditional and irrevocable undertaking has been en cable undertaking has been endorsed by Rosneft and other strategic investors who would hold 98% of Essar Oil once Essar group promoters Ruias sell their stake. Under the circumstances Essar will have to prepay around $225 million to various lenders in persuading them to clear the deal -which is expected to revive the group and lower leverage levels of debt saddled companies like Essar Steel. Most loan covenants typically lay down that lender's consent is necessary for a change of management.
Essar and its lenders having large exposure to the group are keen to close the deal by March 31. One of the possible reasons for sticking to the deadline could be future tax implication of signing the deal on or after April 1, 2017.
Since Essar holds stake in the g roup company through Mauritius-based entities, selling shares after March 31 would mean a capital gains tax for Rosneft and other foreign investors if they choose to exit in future. According to India's revised treaty with Mauritius, while shares bought before April 1, 2017 would not attract capital gains tax irrespective of when they are sold, there would be capital gains tax on shares bought on or after this date and sold later.
Thus, even though selling shares after the deadline of March 31, 2017 would not require
Essar to pay any capital gains tax, it would expose Rosneft and other investors to capital gains tax as and when they sell their stakes. However, a senior banker as well as a person close to Essar brushed aside any such concern and the possibility of renegotiation of the deal price if the transaction is not closed by March 31, 2017. “It's not an issue for long-term strategic investors like Rosneft. These are matters which typically would concern private equity investors," said one of them.
LIC had told Essar that it would approve the deal only after its loans to Essar's power venture are regularised.In reference to this, an Essar official told ET that Essar Oil and Essar Power had individually availed long term facilities from LIC and the these facilities cannot be linked. LIC and other lenders are yet to respond to the proposed undertaking.
The $13-bn deal, which would be single largest inflow of foreign direct investment into India, was announced last October when Prime Minister Narendra Modi met President Vladimir Putin during a meeting of BRIC leaders in Goa.
These lenders had expressed their reluctance to approve the proposed acquisition of Essar Oil by Rosneft and other offshore investors till the dues are cleared.
On Friday, Essar communicated its decision to LIC, GIC and some of the banks which insisted on settlement of loan dues, a person familiar with the development told ET.
The unconditional and irrevocable undertaking has been en cable undertaking has been endorsed by Rosneft and other strategic investors who would hold 98% of Essar Oil once Essar group promoters Ruias sell their stake. Under the circumstances Essar will have to prepay around $225 million to various lenders in persuading them to clear the deal -which is expected to revive the group and lower leverage levels of debt saddled companies like Essar Steel. Most loan covenants typically lay down that lender's consent is necessary for a change of management.
Essar and its lenders having large exposure to the group are keen to close the deal by March 31. One of the possible reasons for sticking to the deadline could be future tax implication of signing the deal on or after April 1, 2017.
Since Essar holds stake in the g roup company through Mauritius-based entities, selling shares after March 31 would mean a capital gains tax for Rosneft and other foreign investors if they choose to exit in future. According to India's revised treaty with Mauritius, while shares bought before April 1, 2017 would not attract capital gains tax irrespective of when they are sold, there would be capital gains tax on shares bought on or after this date and sold later.
Thus, even though selling shares after the deadline of March 31, 2017 would not require
Essar to pay any capital gains tax, it would expose Rosneft and other investors to capital gains tax as and when they sell their stakes. However, a senior banker as well as a person close to Essar brushed aside any such concern and the possibility of renegotiation of the deal price if the transaction is not closed by March 31, 2017. “It's not an issue for long-term strategic investors like Rosneft. These are matters which typically would concern private equity investors," said one of them.
LIC had told Essar that it would approve the deal only after its loans to Essar's power venture are regularised.In reference to this, an Essar official told ET that Essar Oil and Essar Power had individually availed long term facilities from LIC and the these facilities cannot be linked. LIC and other lenders are yet to respond to the proposed undertaking.
The $13-bn deal, which would be single largest inflow of foreign direct investment into India, was announced last October when Prime Minister Narendra Modi met President Vladimir Putin during a meeting of BRIC leaders in Goa.
