There was a time when Essar Group and the Ruia family dominated India’s business landscape. They were everywhere—from steel to power to ports to shipping to IT to telecom. In early 2002, Essar was arguably India’s number 3 corporate conglomerate, behind the mighty TATA empire and the indomitable Reliance Industries. Ruias were the toast of the financial world. Both domestic and international banks queued up to extend lines of credit to ventures backed by the Ruias. They were also the cynosure of the India-destined foreign direct investments. From 2010 onwards, a series of external events—the CAG reports on 2G and Coalgate, that in turn led to Supreme court orders cancelling the telecom licenses and coal block allocations, a sudden policy reversal by UPA II curtailing the natural gas supply to the steel sector, and a cyclical decline in global steel market—took the wind out of Ruias’ sails.
The non-availability of natural gas under the long-term gas supply agreement for its 10 million tonnes per annum sponge steel plant in Gujarat forced Essar to purchase expensive gas from the spot market, resulting in a loss of Rs 2,000 crore per annum. The Rs 40,000 crore plant overnight became commercially unviable, leading to bank loan defaults. To make matters worse, global steel prices collapsed to crisis levels.
But this was just the beginning of Essar’s woes. The CBI pressed criminal charges against senior Essar functionaries, including Ravi Ruia, in the so-called 2G scam. RBI decided to make an example out of Essar and asked the lenders to initiate bankruptcy proceedings against Essar steel even as Ruias were almost on the verge of finalising a loan restructuring deal with the banks. The reputation of the Ruia family lay in tatters. The media took the Ruias to the cleaners, accusing them of corruption, dishonesty and greed. Essar became synonymous with everything that was wrong with Indian capitalism. A mountain of Rs 2 lakh crore debt was staring in their face. Post-2012, the Indian economy slowed considerably, and the domestic demand collapsed unexpectedly. Ongoing infrastructure projects stalled, and project costs overran. The worst hit sectors were power and metals; Essar had heavily invested in both. As the Group’s revenues started plummeting, lenders started calling out loans extended to different portfolio companies of Essar Group. Everybody thought that the Essar was dead and buried.
But Ruias were determined to come out of the hole that regulators, government and agencies had dug up for them together.
Ruias laid out an extraordinary map of paying off all their debts and started monetising one asset after another.
They first sold the Gujarat-situated oil refinery and its captive assets to Russian government-controlled Rosneft. Then they sold Equinox Business Parks to Brookfield and a string of other holdings to international and domestic investors.
On November 2, 2022, Essar finally became debt-free. The Group sold three infrastructure assets (two power ports and a power plant) to Arcelor Mittal Nippon Steel India for over $2 billion. Prashant Ruia, the elder son of Shashi Ruia and Essar Capital Director, tweeted, “End of a challenging phase. Looking back, I’m happy to have met our commitments & monetised some of our world-class assets. Also, the beginning of a new chapter.”
It’s an extraordinary story of large-scale corporate deleveraging, with few parallels in India and anywhere in the world.
The deleveraging exercise was carried out over seven years, marked by both manufactured disasters (demonetisation, haphazard GST rollout, arbitrary cancellation of coal and spectrum allocations, nationwide lockdowns) and natural disasters (Covid pandemic).
Two, it was done in the face of legal (criminal prosecutions) and regulatory onslaught (retrospective amendments in the insolvency act designed to disqualify the Ruias from bidding for their assets). Eventually, Ruias were acquitted by a CBI special court in the 2G scam case. The banks recovered the principal amount and most of their interest from the sale of Essar Steel.
Three, the Ruias managed to pair off the Indian banks even though their equity of more than Rs one lakh crore got wiped out in the process.
So how did the Ruias achieve this?
Firstly, Essar Group was not built on sand. While writing Essar obituaries, people only saw debt figures, not the underlying assets. The Group used bank loans and advances to create one quality asset after another. A remark made by Arcelor Mittal scion Aditya Mittal at World Economic Forum in Davos in 2018 serves as a resounding testimony of Essar’s project excellence. Mittal said that the Ruias had built a world-class steel plant in the form of Essar steel, which had tremendous potential for further expansion.
Secondly, the Ruias have nerves of steel. While many other business families (Neeraj Singal and Brij Bhushan Singal, Venugopal Dhoot and Vijay Mallya) reeling under the burden of excessive debts capitulated, the Ruias dug their heels in. They didn’t run; they didn’t give up. Instead, they laid the foundation of a new, resurgent, debt-free Essar. They worked on two simultaneous tracks—they started new businesses and strengthened existing ones while selling off infrastructure assets to repay the bank loans.
Prashant Ruia’s tweet from yesterday ends with a hint of a new Essar journey. He mentioned a greener and a sustainable world. While the old Essar Group was built on the strength of fossil fuels and mines and metals, will the new Essar be about green and renewable energy?
Let’s wait and watch.