The multinational corporation Essar Steel has reportedly offered new terms to its lenders to restructure its loans. Under the terms, Essar is allegedly offering equity worth Rs 4,500 crore in return for a concession, and is promising that it will pay about 20 per cent of its loans after 15 years. Currently, Essar Steel has bank loans of about Rs 40,000 crore. In 2015, Krishn Kaushik, a staff writer at The Caravan, investigated the vast industry of influence Essar had built by currying favour with politicians, bureaucrats and media persons. Despite its sway, the company is facing severe financial distress. However, a senior financial analyst told Kaushik that Essar’s owners, the Ruias, were well aware of how bank loans worked. They knew, the analyst said, that the “upside is theirs, downside is the banks.” In the following excerpt from his August 2015 cover story, Kaushik explores the financial situation of the Essar conglomerate.
A former senior official with Atal Bihari Vajpayee’s NDA government told me a story from Vajpayee’s time in office—an anecdote about how promoters such as the Ruias understand the function of banks and the restructuring of loans. In 1999, Essar, unable to meet its interest payments, was being hounded by several banks, mainly the State Bank of India and IDBI Bank, both PSUs. When the group approached the government for help, the NDA’s deputy prime minister, Lal Krishna Advani, called up the former official to try and figure out a solution.
“They were in bad trouble,” this person told me. “Ambanis had them cornered. Their Jamnagar refinery was not moving. Their steel-making business was bad.” The official studied the issue and came up with an industrial restructuring plan. “Basically, I said, you sell your refinery; so much money will come; you put it here; the banks will give you loan.” The NDA’s finance minister, Yashwant Sinha, took a look at the deal and declared himself satisfied, the official said.
Then Shashi Ruia saw it. “Shashi came to my room and said, ‘You’ve done to me what even Dhirubhai Ambani couldn’t have.’ He said, ‘You’re asking me to hive off businesses.’” The official was taken aback, and said that this was, after all, what restructuring entailed. Then Shashi allegedly told him, “No. In India it’s not hiving off, it’s giving me more money.” The official told me, “He was so blunt. ‘Mujhe aur paisa chahiye. You get me more money.’” The official said he told Shashi Ruia, “For that you have to go to the politicians.”
Around this time, a senior SBI banker asked the official to tell the Ruias to bring some money they had abroad back to India. “Inko bolo bahar se paisa laye. Yeh bol rahe hain paisa nahi hai, bahaut paisa hai,” the official said he was told—Tell them to bring in money from outside. They say there’s none, but there’s so much.