It is back to the basics for the Mumbai-headquartered Essar Group, which is accelerating the pace of monetizing certain businesses that will yield enough cash for the conglomerate to retire a major chunk of the significant debt on its books.
On Monday, the Essar Group – with interests ranging from power and steel to shipping and ports – said that it had reached an agreement with Singapore-based private equity firm Capital Square Partners to sell its business process outsourcing (BPO) unit Aegis for a reported consideration of $300 million.
The sale of Aegis will be a small, yet significant step in the conglomerate’s attempt to pare debt, pegged at around Rs80,000 crore. In October 2016, Essar had announced a $13 billion-deal with Russia’s largest listed oil company Rosneft PJSC, and a consortium comprising commodity firm Trafigura and United Capital Partners, to sell a 98 percent stake in Essar Oil, which operates a state-of-the-art 20 million tons per year refinery in Vadinar, Gujarat.
The transaction with Rosneft, which is yet to be consummated, will be the key to the conglomerate, led by billionaire brothers Shashi and Ravi Ruia, to meaningfully reduce its debt burden. Yet, it may be the deal to sell Aegis that will enable that to happen.
It was reported that the state-run Life Insurance Corp of India (LIC), which is a lender to Essar Oil, had demanded that its dues be squared off before it gave approval for the deal with Rosneft, the largest foreign direct investment deal in India till date, to go through. This has led to a delay in the closure of the transaction, which was originally expected to happen by March 31. LIC had lent $125 million (around Rs814 crore, based on Tuesday’s exchange rate) to Essar Oil. Some other banks that have lent to Essar have also asked for their dues to be settled before the transaction with Rosneft went ahead, since they were skeptical of their ability to recover these dues once the ownership of the company changed hands.
Essar has subsequently given an unconditional undertaking to LIC and the other lenders that their dues, pegged at around $225 million in all, would be cleared within three days after the deal with Rosneft concluded.
The deal with Capital Square Partners to sell Aegis, which is expected to close in the current financial quarter (by June 30) will give Essar the financial muscle, if it so requires, to meet its commitment to Essar Oil’s lenders. Sources familiar with the development indicate that a subsequent announcement from the Essar Group is likely over the next few days to state that the conglomerates has paved the way for the deal with Rosneft to proceed as planned.
For Aegis, the change of ownership would mean access to fresh capital resources to grow the business in line with the structural changes in the information technology industry – which is increasingly moving towards digital services such as automation and Internet of Things. In a joint statement, Sanjay Chakrabarty and Mukesh Sharda, managing partners of Capital Square Partners said: “We are excited about the opportunity to work with the Aegis management team in embarking on the next stage of growth, by focusing on innovation and adding out sector knowledge and expertise.”
Capital Square Partner was previously an investor in another BPO firm, Minacs, which it exited in 2016. With Essar focusing on paring its debt and growing core businesses such as power, ports, shipping and steel, future capital allocation towards growing the technology business was unlikely.
“Further validation of Essar mantra of value creation. Grew Aegis from 2,000 people in one continent to 40,000 in five continents in just 13 years,” tweeted Prashant Ruia, CEO of Essar Group on Monday, following announcement of the deal. Aegis has an annual revenue of around $400 million. The conglomerate had previously sold Aegis’ operations in the US to Teleperformance.
According to media reports, Sandip Sen, Aegis’ chief executive officer, who has been retained along with rest of the management team, expects the new owners of the company to aid growth by way of inorganic acquisitions in lucrative markets like the US.