October 19, 2016

Bankers overjoyed with Essar Oil deal

The acquisition of Essar Oil by Russian firm Rosneft along with other investors has brought cheer to beleaguered Indian banks that have been bogged down by rising stressed assets over the past four years.

While loans to Essar Oil, to the tune of Rs.28,000 crore, are still seen as standard (or performing assets) in bank books, loans to Essar Steel, amounting to about Rs.35,700 crore, have been classified as non-performing by most banks.
Analysts said that this deal gave the Essar Group the opportunity to reduce debt in Essar Steel as well as in Essar Power.

On Saturday, promoters of Essar Oil sold 49 per cent of their stake to Rosneft, while Netherlands-based Trafig-ura Group and Russian investment fund United Capital Partners split another 49 per cent equity equally. The value of this all-cash deal, which includes Vadinar Port assets, was $1.3 billion or about Rs.85,000 crore.

“The key beneficiaries from the Essar Oil deal are likely to be ICICI Bank, Standard Chartered Bank, SBI, Punjab National Bank, and IDBI Bank,” Motilal Oswal Securities said in a report. “We believe NPA recognition for large accounts has peaked and expect gradual resolution hereon,” the report added.

Analysts reckon this deal could lead to the resolution of close to 10 per cent of the system’s NPAs, in a domino effect. According to RBI data, stressed assets of Indian banks rose from 9.8 per cent at the end of March 2012, to 14.5 per cent at the end of December 2015.

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