Essar Group lender syndicate raises concerns about $13 billion sale

By Caroline Salls

Pittsburgh, Nov. 8 – The Essar Group syndicate of lenders, including funds managed by Davidson Kempner Capital Management and several global financial institutions, raised concerns about the proposed $13 billion sale of Essar Oil Ltd. to a consortium including Rosneft PJSC, Trafigura Beheer BV and United Capital Partners, according to a news release.

The lender syndicate is owed about $411 million by various entities within the Essar Group, including Essar Global Fund Ltd.

According to the release, the Essar Group agreed to sell Essar Oil and associated assets for roughly $13 billion in a transaction supported by a $3.9 billion bridge loan from VTB Group to the Essar Group.

The lenders said they have repeatedly asked for transaction details that Essar has refused to provide, and the lenders’ concerns are amplified by the Essar Group’s “long-running history of value-destructive financial transactions, and opaque inter-company dealings.”

The lenders said they are reserving all of their legal rights and will pursue any and all appropriate legal actions against the parties involved in the transaction to protect their interests.

“While Prashant Ruia, the chief executive officer of the Essar Group, has championed the transaction as a historic opportunity to reduce Essar’s debt, we are unable to ascertain if the transaction is in fact value-maximizing or even lawful from the perspective of the creditors,” the lenders said in the release.

“Additionally, the lenders are concerned that proceeds from the transaction (if and when it closes), could be diverted to entities controlled by the Ruia family, thus evading the lenders’ rights to those proceeds.

“We are troubled by fact that the Ruia family has private minority shareholdings in two of the companies that are receiving proceeds from the transaction and that those proceeds may bypass the corporate group.”

Essar Steel Algoma is based in Sault Ste. Marie, Ont., and manufactures hot and cold rolled steel products. The company filed for bankruptcy on Nov. 9, 2015 in the U.S. Bankruptcy Court for the District of Delaware under Chapter 15 case number 15-12271.

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