Last week, the Ruia family-controlled Essar Oil and the Russian government promoted oil and gas giant OJSC Rosneft announced that the latter, along with United Capital Partners and the Trafigura Group Pte, had bought out the former’s fuel refining and retailing and port business for a little under $13 billion (around Rs 85,000 crore). Not only is this the largest ever infusion of foreign direct investment (FDI) into India, it will help the Essar Group pare a significant portion of its estimated Rs 1.3 lakh crore debt burden.

The all cash deal, which has two components—a $10.9 billion (Rs 72,800 crore) for Essar’s refining and retailing business and $2 billion (Rs 13,300 crore) for the Vadinar port in Gujarat—has given enough reason for the Narendra Modi government to go to town, selling it as an FDI story.

But dig a little deeper, and the deal begins to look interesting for other reasons. First it has made several lenders, including ICICI Bank very happy. ICICI Bank saw its stock rally 7% after the deal was announced. In an interview to The Economic Times, ICICI Bank’s chief Chanda Kochhar said the deal will translate into half its exposure to Essar either being repaid or turn into non-Essar exposure. Although Kochhar did not cite a figure, she did hint that the bank could benefit by as much as $1 billion from the deal.

Other banks that have exposure to Essar and could consequently benefit, are State Bank of India and Axis Bank.

But this is not all there’s to this story. In recent months, at least two oil companies owned by the government have been buying stakes in Rosneft operated assets.

On 5 October, the cabinet cleared an 11% stake buy by Ongc Videsh Ltd, in Rosneft’s wholly owned subsidiary JSC Vankorneft, which operates the Vankor oil and gas fields, for $930 million. Before this, a consortium, of Oil India Ltd, Indian Oil Corp. Ltd and Bharat PetroResources Ltd (a subsidiary of Bharat Petroleum) had bought a 23.9% stake in Vankorneft for a little over $2 billion. Earlier in May, OVL had acquired a 15% stake in Vankorneft for $1.284 billion.

This essentially means that the Indian government has, in recent times, pumped in more than $4.2 billion into a subsidiary wholly owned by Rosneft.

Interesting, isn’t it that the parent company then goes ahead and acquires a debt laden private Indian asset?

Has Mr. Modi’s government therefore effectively bailed ICICI Bank and the others out?  

(Aman Malik is Senior Assistant Editor at VCCircle.)

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