The recently inked Rosneft-Essar Oil deal will help the latter pare its debt and help corporates that have direct exposure to the company. Essar is planning to reduce its group debt -- Rs 88,000 crore -- by more than 50 percent using the Rs 86,100 crore proceeds that it will receive in the all-cash deal.
IDBI Bank, which has exposure to the company, says that corporates including the bank will have to look at how Essar plans to disburse the amount.
“They (Essar) will also use some of these funds for reducing their debt and if that happens, some relief will come for IDBI also surely,” said Kishor Kharat, MD of IDBI Bank.
The steel sector has started showing improvement in terms of demand. IDBI has some exposure to Essar Steel as well.
“I am seeing this Essar Steel or any other steel company -- this is the right time for them once the EBITDA is positive; bankers also will get some confidence for doing some restructuring,” he says.
Below is the verbatim transcript of Kishor Kharat's interview to Latha Venkatesh on CNBC-TV18.
Q: The BRICS summit has one important benefit for the Indian banking sector, Essar Oil has been purchased by Rosneft, is there any immediate impact for IDBI itself?
A: Yes we do have some exposure in Essar Oil but we need to get a clarification rather clarity on how the funds are going to be used by the company because most of the funds might go to holding company level debts and some of the debts are in the foreign currency in the foreign countries. So how they are going to prioritise, we need to understand from the promoters.
So once that clarity is come -- but I am sure promoters are also willing to reduce at the group level itself some of the debts because many of their companies are also reeling under the debt. If that is reduced little bit out of this -- because it is a big deal and good chunk of funds are coming. So they will also use some of these funds for reducing their debt and if that happens, some relief will come for IDBI also surely.
Q: Your exposure to Essar Oil itself is how much?
A: That must be in some four figures.
Q: So that becomes Trafigura's or Rosneft's debt?
A: Yes, it will go out of the group company exposure. That is why I am saying that we need to understand how they are going to structure it entirely because if it is all cash deal and they are going to settle the lenders, it will be a different situation but if it is only the equities taken and then all debts are going to be transferred to new buyers, promoters, perhaps the situation will be different.
Q: But even then you would have provided for Essar Oil, was it an non-performing assets (NPA) at all?
A: No, it was not.
Q: So there is no provisioning relief?
A: No, there is no provisioning relief.
Q: What about Essar Steel? Is there any clarity on whether it makes it easier for you to restructure Essar Steel because the promoters have more money?
A: Let me tell you differently here because the steel sector itself has started improving and during our personal interactions also what we get to know from all these companies, which are in the steel industries, the capacities have started increasing.
They had come up almost up to 30-40 percent of the production capacity. Today they are talking about 70 percent of production capacity, the EBITDAs has been come to positive stage. So irrespective of this kind of deal, whatever happening in the group companies -- I am talking in general -- I am seeing this Essar Steel or any other steel company -- this is the right time for them once the EBITDA is positive, bankers also will get some confidence for doing some restructuring.
Recently Reserve Bank of India (RBI) is giving some fillers and apart from this foray, they are talking about sustainable debt can be kept as a standard and unsustainable can be treated as NPA for long. So that also gives a lot of relief. Then bankers will come forward for deep restructuring also.
So both ways, I am seeing there will be some good resolution coming to steel industry.
Q: You expect that a resolution of Essar Steel in some form S4A or some other form will happen in this fiscal?
A: Yes, it should happen in this fiscal.
Q: Any of the other steel companies also you think?
A: Most of the steel companies. I would not like to speak. It should be resolved because things have started changing in their favour. Because what confidence we were not getting was their EBITDA itself was lost, they were making cash losses, operative losses, everything was there. In that situation, bankers don’t get confidence to restructure particular for longer-term. Now we can do that.
Q: Would you say that in FY17, your total quantum of stressed assets that is NPA plus restructured will be slightly smaller?
A: We cannot say it is bottomed out. But if you look at the trends, the stressed levels have definitely started reducing and therefore it is reflecting in our results also. If you look at the incremental NPAs, it is sliding down very fast.
So in case of IDBI also, it is within control but once the economic situation is slightly improving particularly for the core industries, we will come out of it. Once the core industries start moving, it will bottom out.
Q: Now National Investment and Infrastructure Fund (NIIF) has also signed a deal with Rural Infrastructure Development Fund (RIDF) with the Russian Sovereign Fund, they have already got previous deals with Qatar and other sovereign funds, is there any indication when the first project will be run -- that will mean fresh loans, fresh capex?
A: So far there are now indications but I think NIIF will certainly play a major role for turning around this. Today also, we need infrastructure. What experiences we have, particularly lenders got out of this infrastructure lending because of that a little setback is there. But funds like NIIF comes forward, we can again get courage to lend for the infrastructure developments.
Q: Any improvement in power companies because of UDAY scheme or some such schemes? Are you noticing any de-stressing?
A: Power companies de-stressing is certainly there. There are new power projects, which are coming up. Particularly they are coming up in the renewable energy side.
We are also lending to a lot of power sector. So power sector certainly particularly after that UDAY scheme has probably come which was introduced. It has started giving some relief. The impact will be seen after few years. Still there are problems going on but certainly it will help us.
Q: What about capital, you have some plans of QIP and other capital raising? What is the game plan for the current fiscal?
A: If you look at IDBI, we have started showing the growth pattern which was not there for last 12 years.
Last 12 years, bank was growing at less than 5 percent. Last quarter June, we have shown 6.5 percent, so jinx of less than 5 percent is broken. This quarter I am expecting much better. If everything goes well, I may show double digit growth also. But definitely in FY17, we are expecting 15-16 percent growth. So that will be 3 times of growth what we have shown during last 12 years. That creates requirement for the capital.
Therefore, our shareholders have given us permission to raise Rs 8,000 crore of capital, we have plan to raise Rs 6,000 crore of capital during this financial year. We have already appointed merchant bankers. First meeting of the merchant bankers will be held very shortly and we are then going to unveil our plans for capital raising.
Q: So if Rs 8,000 crore is Friday's closing price and is raised as shares then what will the government's stake come down to approximately?
A: For government's stake, today also government is above 76 percent. Let us say around 6-7 percent it will come down to 70 percent but it will definitely not come down closer to 50. We still have lot of margin there.
Latha: Is there any progress at all in roping in an investor like IFC or somebody or CDC, these names, these people have been interested in the Indian banking space, should we expect it in this fiscal, some sale of government stake to these guys?
A: Earlier also I said and I will maintain that, the government of India definitely has certain plans for the banking reforms. I look at it that IDBI’s whatever statements were made in the Budget, those were also part of those banking reforms and the government is seriously thinking about that. There are certain serious investors as the names which you took, some people already have started due diligence, some of them have indicated that we are rather interested and in our scrip there is definitely a strength, everybody sees upside in this scrip. So there is interest from the investors. The intent is also there, the only thing, when it is materialising, like you I am also curiously waiting.
Q: What do you expect the MCLRs to go down to, you are at the moment at 9.5 percent?
A: No, we are at 9.3 percent.
Q: You see it sub 9 percent in 2016?
A: This fiscal sub 9 percent it is not possible. We may go closer to 9 percent because this one tranche which has given, we still have not transmitted that one because we were still working, in our perhaps next ALM we will take call on that one. If one more 25 basis cut comes, then we might go closer to 9 percent or little bit sub 9 percent.
Q: You are reasonably confident that in FY17 you will have a double digit growth?
A: FY17 yes, I am just waiting for my September results to come out. If I am very close to double digit growth, I am sure I will clock three times the growth which we have shown during last 12 years.