Essar Said to Prepare $2.1 Billion Standard Chartered Repayment

(Bloomberg) -- Essar Global, the holding company of India’s billionaire Ruia brothers, plans to repay about $2.1 billion owed to Standard Chartered Plc after agreeing to sell control of its refinery business, people with knowledge of the matter said.

Essar Global will also pay back about $300 million combined to Indian lenders ICICI Bank Ltd. and Axis Bank Ltd., according to the people, who asked not to be identified as the information is private. It will repay the creditors in the next few weeks, before the completion of the Essar Oil Ltd. sale, using a $2.4 billion bridge loan from Russia’s VTB Group, the people said.

Standard Chartered, which has about $3.1 billion of outstanding lending to Essar Global, plans to replace around $400 million of its exposure with a loan to unlisted operating company Essar Ports Ltd. and will write off the remainder, the people said. That may allow the London-based bank to write back around $100 million of its provisions for Essar Global, since the losses are less than the roughly $700 million previously set aside to cover potential delinquencies, according to one of the people.

Essar Global, which also owns steel mills and ports, has been seeking to divest assets as it grapples with debt after commodity prices fell. The Indian conglomerate said Oct. 15 it agreed to sell control of Essar Oil, India’s second-largest private refiner, and related facilities to a group of investors including Russian oil producer Rosneft PJSC for an enterprise value of about $13 billion.

Shares of Standard Chartered rose 2.8 percent to 676.80 pence at the close in London on Tuesday, after earlier jumping as much as 3.7 percent, the biggest intraday gain in a month.

Cutting Debt

A representative for Standard Chartered declined to comment. Representatives for ICICI Bank and Axis Bank said they couldn’t immediately comment. Essar said in an e-mailed statement its intent is to reduce debt at the level of both the holding company and its operating companies. 

“The final amounts will be decided at the time of closure of the transaction,” it said in the statement. 

Essar Global plans to pay a combined $250 million to ICICI Bank and Axis Bank upon completion of the refinery sale, which is expected in the first quarter of 2017, the people said. After that, the two local lenders will still keep about $450 million of combined exposure to Essar Global, which will be backed by adequate collateral, according to the people. 

The domestic banks haven’t made any provisions for the Essar Global loans in the past and don’t currently plan to make any writedowns, the people said.

Before these moves, Essar Global owed around $4.1 billion to the three banks, according to the people. Earlier this year, ICICI Bank and Axis Bank already reduced their combined Essar Global exposure by about $500 million by replacing holding company borrowings with loans to the operating company that owns Essar’s Vadinar terminal, the people said.

To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net, Anto Antony in Mumbai at aantony1@bloomberg.net. To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Marcus Wright at mwright115@bloomberg.net, Paul Panckhurst