ICICI Bank Gains On Rosneft Deal, Lenders Feel Relief

On Saturday the Ruias of the Essar group signed a binding deal with Russia’s 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 Rosneft’s 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 Oil’s 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 don’t 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.