The Essar group’s debt will reduce by close to Rs70,000 crore with the completion of the sale of Essar Oil and related port assets, said group director Prashant Ruia on Monday.

Ruia was speaking after OAO Rosneft and a consortium of Russian private equity fund United Capital Partners (UCP) and commodity trading firm Trafigura announced the close of their $12.9 billion deal to buy Essar Oil.

Part of the sale proceeds would be used to repay Indian lenders including Life Insurance Corporation of India (LIC); however, no funds will be used to repay the debt of Essar Steel Ltd from this transaction, Ruia said.

Essar Steel, one of the 12 cases identified by the Reserve Bank of India for early bankruptcy, is currently being managed by an interim resolution professional under India’s bankruptcy code.

As part of the deal, Rosneft PJSC and the consortium of Trafigura and UCP have acquired 49.13% each in Essar Oil, with the rest distributed among retail shareholders. Essar’s promoters, the Ruias, will hold 2% in the Trafigura-UCP consortium.

The deal, the largest foreign direct investment in India, was announced by Indian Prime Minister Narendra Modi and Russian President Vladimir Putin during last year’s BRICS summit, but the valuation was only driven by commercial considerations, said Tony Fountain, the newly-appointed chairman of Essar Oil. Essar Oil’s new non-executive director, Jonathan Kollek, said that the Ruias had signed a permanent non-compete agreement and would not enter the oil refining and retailing business in India ever. Essar, however, said the non-compete clause is only for three years, PTI reported.

According to an Essar spokesperson, this is how debt would be reduced from the group balance sheet: About $5 billion of loans at the group holding company level would be retired. Another $5.4 billion of loans on the books of Essar Oil, Vadinar refinery and Vadinar port would be transferred to the new owners. Indian lenders such as LIC would get $600 million towards their dues. This adds up to $11 billion, or about Rs70,500 crore of debt.

That would wipe off at least half the debt on Essar group’s balance sheet. While Essar has remained mum on overall debt, brokerages estimated its total debt at close to 1.3 trillion at the time of signing the deal in October.

“This transaction reduces ICICI Bank’s exposure to the Essar group by about 50%," said Chanda Kochhar, managing director and chief executive of the private lender.

The group had also partly repaid ICICI Bank and Axis Bank’s loans to the holding company, the company said.

Ruia clarified that Essar Oil has about €2 billion of outstanding payments to Iran against crude purchases and that the new owners of the company will honour these payments as per an earlier approved schedule.

The new owners of Essar oil moved to reconstitute the board on Monday.

Fountain, a nominee of UCP, has been named chairman and B. Anand chief executive officer. The new board has set a target of expanding the company’s retail distribution network to about 6,000 pumps from the current 3,500, Fountain said.

Rosneft first expressed an interest in India’s second largest private oil refiner in 2015. The deal took a longer-than-expected 10 months to complete after the formal signing in October because lenders demanded a repayment of their debts as a pre-condition for approving the deal.

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