Prashant S Ruia, chief executive officer of Essar Group, has been with the company since 1985. He plays a key role in the growth and diversification of the group, both on domestic as well as international level.
In an interview with CNBC-TV18, Ruia claims the group will be debt free by the end of this financial year, i.e by March 2019.
He also spoke at length about the repayment plans, the business strategies, revenue targets and listing of businesses.
Watch the video here
Read the full transcript here:
Q: Rs 1.37 lakh crore debt repaid in the last 18-24 months ... you have stated that this is 80 percent of your debt, so take us through how much debt is left now and what is the breakup and who are the lenders that are yet to be paid.
A: We kicked off a programme over two years ago and this was because in 2010 we had kicked off a very large expansion programme in India and it was Rs 1.25 lakh crore in all the four sectors of businesses we do – steel, oil and gas etc. After 3-4 years we faced regulatory and judiciary issues like cancellation of gas allocation, cancellation of coal mines, etc and that forced us to invest additional Rs 30,000 crore of equities in the business and delayed some of our key projects by 3-4 years. That led to an excessive leverage and as a reaction to that as a group we felt that it would be right to deleverage. Now we have come pretty much to the end of that programme and we have now monetised some of our key assets, which have fetched premium valuations, which I think is the testament to the quality of businesses which we have built over a period of time.
Now we have repaid 80 percent of our group debt, which works out to Rs 1.37 lakh crore and that means 20 percent is left over. More importantly the four main lines of businesses which we have – metals & mining, oil & gas, infrastructure and services - they continue and we still remain focused on all four sectors. The Essar Steel one has to see still what comes out given what is happening in the courts. Independent of that, the group will have $11.5 billion of revenues in this four businesses and now with a much stronger and lighter balance sheet we will look at growth opportunities both in these sectors and other sectors going forward.
Q: Can you give us the exact amount of debt left and how much time would it take to pay that?
A: There is no further major payment plan, the repayment programme has come to an end. 60-70 percent of the balance debt is really in the power portfolio. The power sector has been going through a lot of issues over the last 2-3 years with cancellation of cold mines, non-availability of PPA, etc. The whole sector has been facing a lot of issues but thankfully most of those issues are getting addressed and we hope that our power portfolio - the last piece of it, we will address within the next two quarters.
Q: How would you do that?
A: There is no real change, we have completed all the projects and barring one, all the power plants are operational. We have a total of 5000 megawatts of power and 3800 MW of that is operational and 1200 MW is under construction. That projects need to be completed and that is really the last project in the whole group portfolio which is left to be completed. The project got into trouble because the mine was cancelled, financing got pulled and we had an incomplete project but now we will complete that in the next 18 months.
Q: So the debt payment in power is going to be...?
A: It will be more of a refinance.
Q: So what is the exposure right now in terms of debt in power?
A: About Rs 18,000 crore maybe.
Q: So, in the next two quarters you will be able to refinance and bring that down?
A: Not all of it requires refinancing, only a portion of it requires refinancing and we will do that in the next two quarters.
Q: Any plans of bringing an investor on board for Essar Power?
A: No, there are no plans.
Q: Let us talk about the last tranche of repayment that you did, which was Rs 12,000 crore – take us through where the capital came from and that was paid to the Indian banks?
A: Principally about year and half ago when we did the Essar Oil monetisation with Rosneft and Trafigura Group in August 2017, we repaid about $5 billion of our debt at Essar Global and the last tranche was one about $1.75 billion which was recently given back.
The only lender left now at Global is VTB and they have been working with us for the last 3-4 years in helping us rebuild and monetise some of our assets and they continue but they also may not be continuing for long. It is a short-term. Principally, Essar Global current year will be debt free.
Q: So, by the end of this fiscal that is March 2019, you are expecting to be debt free – your exposure with VTB is going to be cleared?
Q: Any kind of agreement with VTB with respect to specific assets?
A: No, we have pretty much completed the programme which we had for monetisation, we have completed the programme for debt reduction and so we are pretty much trying to draw a line in that phase and we are actually looking forward to an Essar 2.0, where we are looking at building our business back for the future.
Q: And the four sectors that you outlined are going to be the core sectors you will focus on?
Q: What is the exposure left for Essar Global, the amount in terms of consolidated debt?
A: It is $1.5-1.6 billion.
Q: You said you settled with lenders with respect to Essar Steel Minnesota as well, can you help us with the break-up of ICICI Bank and SBI, how much do they get?
A: No, I cannot do that but we have clarified that nearly about Rs 6,000 odd crore has got repaid to group of ICICI Bank, Axis Bank and Standard Chartered.
You spoke about group revenues, $11.5 billion excluding Essar Steel – can you help us understand the outlook for the four core businesses, what is the break-up, which are going to be the dominating businesses? What will Essar Group look like in 2022-2025?
A: There are four business portfolios – in oil & gas, we principally have the standalone refinery business in the UK, which is 16 percent of the UK market. It is a strong refinery and we have invested heavily over the last few years in upgrading the refinery and making it top of the line, in top quartile of refining capacities in Europe.
We are investing in retail and building a retail network in the UK and we have and exploration & production (E&P) portfolio, which is basically a non-conventional energy, so shale gas and cold bed methane gas - we are the largest player in that space in India and we will continue to invest in that sector.
Then infrastructure is principally ports and power. We are number two operator in the ports sector. So, if you look at all these businesses, all of them continue to have huge potential in India. In the last 4-5 years, we haven’t seen significant capital investments in these sectors and India continues to grow 6-7-8 percent depending on the sector. So, over the next decade 5-10 years there would be lot of opportunities in these sectors. Further, in the last few years, many of these sectors have got consolidated a lot and therefore the number of players are much less. So, if you have existing position in these sectors then the opportunity for growth very much exists going forward.
Q: By how much do you want to scale up revenues, is there a target that you have set for yourself, keeping these four sectors in mind?
A: No, we haven’t set a specific target. To be honest last few years have been a phase where we have consolidated, monetised some of our assets, we have addressed some of the regulatory and judicial challenges as a group and now is the time to put that phase behind us and start looking at the future. Even in the past, we have never gone by saying that we want to double our revenues, etc. That has never been the way we have gone about it. We have looked at each opportunity as it arises in various different sectors and then we have seen what best suits and what we can do. We have looked at it on that basis.
If you see our track record and our history then growth is something which we have always done.
Q: You are out of most of the listed areas, any plans to list any of the businesses?
A: No, not immediately. However, in the future if there is an opportunity and potential to list some of our companies then we will look at it.
Q: Can you give a break-up in terms of $11.5 billion of revenue– which of the four core businesses will be the largest contributor to the revenues?
A: In terms of revenue I would say the oil & gas business because of the nature of the business- it is the largest contributor. So, nearly $7.5 billion of the total amount is from oil & gas business. The rest is distributed amongst all other businesses that is power, ports and rest of the portfolio like mining, etc and this is other than steel, we will have to see what comes out of steel.
Q: You spoke about Essar 2.0. Last two years were about monetisation, consolidation – are you now in a position to invest again, would you look at aggressive investment or be cautious?
A: Obviously, we are not going to be an aggressive investment programme immediately. We want to be conservative, cautious in the way we look at business going forward. I think we still have one or two things to resolve in terms of what comes out of steel and our power portfolio but we are open to look at opportunities going forward and see what makes sense.
The investment thesis has to be slightly different given what has happened in India in these sectors in the last few years but that doesn’t mean that there is not going to be any investment going forward.
Q: Any capex target?
Q: You have made a proposal of Rs 53,389 crore to the CoC, this is higher than what ArcerolMittal had offered- Rs 42,000 crore, but your bid came after CoC declared the H1, now it is in the court. What is your expectation of the resolution process as it stands? Any clear indication on if the company or a company can withdraw the insolvency process altogether?
A: The matter is sub-judice so it is difficult to say what I expect or not. However, giving little bit background – Essar steel has been an asset which is one of India’s premium steel companies. I think the valuations which have come out reflect the quality of the asset and the strategic nature of the asset in the Indian steel scenario. Having said that the principal reason Essar Steel got into difficulty was the cancellation of the natural gas, which affected the company badly. More than 60 percent of the plant remained shut for nearly four years and in the meantime we continued to support the company and got into difficulty.
There was a restructuring plan agreed by us and some lenders but that too could not be completed in time and now we are in the IBC process.
In the IBC process, we have given a proposal now, which we believe is a superior proposal compared to the one which lenders have already and we are awaiting the decision. Unfortunately, the matter is again in the courts and we have to await what decision comes out of the court process.
Q: Where are the funds coming from, what is the source of funds? Do you have an investor or investors on board?
A: I am not at liberty to give you more information than what is out there in public domain but we will be having nearly Rs 30,000 crore of debt on the asset, which is very normal and the rest will come in the form of equity and we do intend having partners along with us for the equity component. I am not at liberty to disclose names right now but it is a fully funded proposal and we would urge the lenders to look at it little bit more seriously.
Q: You have partners so you have more than one investor on board as far as the equity component is concerned. The Rs 30,000 crore is debt, why would you want to take debt to repay the debt at this point?
A: Any acquisition which is done in India or overseas has to be – because you are buying an asset which is completely debt free and you would have a certain component of debt which would go on to the target and the rest would be in the form of equity. It does not matter whether we are doing it or anybody else who is considering acquiring this company or Bhushan or any other company, for that matter the financing mechanism is the same. There is no difference and that is the conventional wisdom and that is what we are following.
Q: The question that bankers are asking is that why come out now, why not earlier, why were the funds or why was the offer not made earlier and why come out right after H1 was declared? A: I think that is a bit unfair because the way the process has been structured, we were really not permitted to give a proposal earlier. So even though we tried to give proposal initially there was a 29A rule which was brought out which prevented existing promoters from participating in the process and that rule was applied retrospectively on to us. After that for nearly a year, we approached the lenders 2-3 times and all the time we were told that because of the 29A you cannot participate.
Then a new rule came out which was the 12A rule which permitted existing promoters to put in a proposal to withdraw the company from IBC with a 90 percent vote. So, now we are being told that rule is applicable prospectively and therefore not applicable to you. So, that is what is going to get decided in the court. We gave the proposal the moment there was an opportunity to give a proposal where our bid would be even considered and till the 12A rule came out there was not a chance for us to give a proposal. So, the timing was really linked to that. I don’t think it was nothing to do with when the H1 came or when the H1 did not come. Our proposal is Rs 12,000 crore more than the H1 bid.
Q: I believe includes even the operational creditors and erstwhile employees as well.Can you give me a breakup of that?
A: I cannot give you a breakup, but principally our proposal provides a 100 percent recovery of principal and interest to the Indian secured lenders. It provides also a 100 percent recovery to the operational creditors and the unsecured creditors. So effectively all the creditors whether secured, unsecured, operational- they will all get full recovery and that is the proposal.
Q: What is your plan right now, is it going to be an upfront payment or over a period of time?
A: A very large percentage of it nearly Rs 47,000 crore is an upfront payment and the rest is to be paid over period of two or three years.
Q: Just to play devil's advocate, bankers say that you have not been able to disclose the fund resources to assure them to withdraw the IBC process and that is why it hasn’t been considered, what is your take here? What is your counter to that?
A: They haven’t asked us.
Q: Why haven’t you declared the fund resources? A: As I said they haven’t asked us and obviously they have asked you, but they have not asked us. I don’t think the issue really being debated in the court is the financing. I think issue being debated in the court is whether under 12A can consider our proposal or not. Q: You are confident of the investors that you have on board?
A: We are confident of the proposal we have given.
Q: A quick clarification, there are some reports that say that the offers cover the dues to Orissa slurry but not of the other group entities, is there an option to increase this offer as well? A: The offer is similar to existing proposal which basically covers all the assets of Essar Steel. There is nothing, it is no different, it is the same. Q: A broader question to you, we have seen some cases in which some steel assets have been taken over in the IBC process and yes you are seeing initial signs of turnaround. What convinces you that you will be able to take Essar Steel to a level which other companies won’t?
A: Our track record in the steel business has been fairly strong. We have built a world class business. Our asset in terms of its capacity and quality of steel which we produce and competitiveness is fairly strong. The reason the company got into difficultly was beyond our control. It was the cancellation of our natural gas which is a raw material for our steel plant that was something which one could not have planned for. It didn’t matter who the promoter was, he would have the same outcome. If your principal source of energy is suddenly yanked away I think you are going to have the same outcome, doesn’t matter who the prompter is.
Q: Hypothetically speaking, if you still had Essar Steel, what would the profitability be right now? A: It is very speculative to say. Q: I am going to ask you a broader question that a lot of people are asking, steel prices are at a high right now, there seems to be a talk about a recovery … but now the fear is that there is a slowdown around the corner, does that mean that we would be back to square one from the steel industry perspective? A: The steel industry is a cyclical industry. So it is an industry, which has a few good years and then a few bad years. We have been through this over the last two decades where we have had two-three downturns and a few upturns. So that is something which you factor in into your business model if you are in the steel commodity industry.
What you have to see is whether the company is competitive even in the downcycle and I think generally most steel companies in India are reasonably competitive.
Q: Do you think that there is a slowdown in the industry around the corner? A: There has been. In the recent past, there has been a slowdown. Q: It is not going to be what it was earlier is what you are saying? A: We certainly don’t hope that and we don’t see that yet because in the rest of the world, markets still remain strong, US remains strong and China growth is coming back. So overall we don’t see that kind of negative downturn. Q: 2019 is going to be an eventful year, there are elections around the corner, there is a lot of movement with respect to macroeconomic issues across the world, what is your perspective in terms of how things will change for Indian corporates before and after the elections? A: Globally if I was to say first, clearly, there are a lot of headwinds currently in the global macro scenario. You have got a lot of issues coming out of the US, Europe, UK with Brexit and so if you look around, Middle East is having its own set of issues, so despite all of this, the broad growth and economic numbers still are coming out fairly good but there are these headwinds, which are there and I am not sure where they will all land but this year they will all see the end of some of them at least in the current year.
India still remains a strong economy, India still remains - all the basic parameters of growth and consumption in India remain intact. I think the policies, which have come out already in the last few years, have cleared the way for future growth and future development. We certainly need to see a new investment phase in India, which has been lacking in the last few years and that is something, which we look forward to - may not be in the current year but certainly in the next.
Q: Do you think the investor appetite should revive after elections at least in the second half of this calendar year? A: Yes, it has to because we have not seen significant investment coming in and growth continues to remain strong - 7 percent growth is a strong growth for a country like India. We obviously want it to be better but even where we are, it is a strong growth. New capacity will ultimately be required to meet that demand and we don’t see that yet. So certainly if not later this year but in the next year or two, we will have to see a revival of investment in all of the manufacturing, infrastructure, commodity sectors, which has been lacking in the last few years.