BackICICI Bank shares rise 7% on Essar-Rosneft deal
ICICI Bank has a significant exposure to the Essar group, which has a total debt of around Rs90,000 crore
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Mumbai: Shares of ICICI Bank Ltd on Monday closed 7% higher, the maximum rise in over seven months, as investors hoped that the proceeds from the sale of Essar Oil will help the Essar group deleverage. ICICI Bank has a significant, though unknown, exposure to the Essar group, which has a total debt of around ₹ 90,000 crore.
Other banks such as Axis Bank Ltd and State Bank of India (SBI), which also have exposure to Essar, saw their shares climb. ICICI Bank rose 7%, most gains since 2 March, to closed at ₹ 258.55. SBI rose 0.5% to ₹ 253.10, Standard Chartered Plc rose 2.5% to ₹ 53.05. However, Axis Bank fell 0.4% to ₹ 518.85. India’s benchmark Sensex closed 0.52% lower at 27,529.97 points.
“These banks have a large exposure to the Essar group and weak financial conditions of the group had raised the concerns over assets quality. Now the latest asset monetization by group under which it will sell its India’s refining business will help it to reduce long term debt which is likely to ease the asset quality pressure," said Satish Kumar, research analyst at Choice Broking.
Essar Oil on Saturday sealed a deal with Russia’s PJSC Rosneft Oil Co., United Capital Partners and Trafigura Group Pte to sell 98% in its most prized asset, the 20-million tonne per annum Vadinar refinery and Vadinar Port in Gujarat.
An all-cash deal, the transaction includes ₹ 72,800 crore ($10.9 billion) for Essar Oil’s refining and retail assets, and ₹ 13,300 crore ($2 billion) for Vadinar port and related infrastructure. The funds realised through the deal will be used to settle Essar Group debt, said Prashant Ruia, director, Essar Group at the press meet held in Goa, Mint reported.
“Of late, banks have increased pressure on defaulting promoters to make good on their loan repayment commitments by raising money through sale of stakes in their profitable ventures (recent examples: JP-UltraTech deal, Essar deal, GVK and GMR airport deals). The current deal would also serve as a strong message for other debtburdened promoters (especially mid-sized companies) to deleverage. We believe NPA recognition for large accounts has peaked and expect gradual resolution hereon" said Motilal Oswal said in a note to its investors.
The Essar group has a debt of about ₹ 90,000 crore that it accumulated in a bid to expand operations and buy steel and oil assets overseas.
“The 98% stake sale in Essar Oil and 100% stake in Vadinar port by the Essar Group for a total consideration of Rs85,000 crore (all-cash deal) as a very significant event for the Indian banking sector for several reasons. The formal announcement of the deal in the recent Brics summit in the presence of the political leaders of India and Russia suggests a high degree of involvement of the Indian government in the transaction," said Kotak Institutional Research in a note to its investors.
“We note that Indian PSU oil companies had earlier purchased a 49.9% stake in the Vankor oil block of Rosneft. Indian banks have become very forceful in addressing the problem of bad loans. Indian promoters may have little option but to sell profitable assets to reduce debt; this has been the case for the past two years," the report added.
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