Essar Said to Be in Asset Sale Spat With IDFC Private Equity

  • Power arm in arbitration over disagreements on Vadinar sale
  • Indian conglomerate seeks to cut debt after $18 billion spree

Essar Group, the Indian conglomerate grappling with debt after an $18 billion spending spree, is in the midst of a dispute with IDFC Ltd.’s private-equity arm that could delay planned asset sales, people with knowledge of the matter said.

The group’s Essar Power Ltd. unit is in arbitration with IDFC’s India Infrastructure Fund over disagreements on plans to sell the Vadinar power plant in western India, according to the people, who asked not to be identified because the information is private. 

India Infrastructure Fund sued Essar Power in the Delhi High Court in 2014, claiming the Indian electricity generator hadn’t sought its permission for the divestiture as required by the terms of its investment, according to court filings. The dispute entered domestic arbitration last year at Essar Power’s request, the people said.

Essar Group, owned by the billionaire Ruia brothers, has been pursuing divestments after earnings were hurt by falling commodity prices and weak demand. The conglomerate has been aiming to reach a firm agreement on selling a stake in refinery arm Essar Oil Ltd. at a $6.5 billion valuation by the end of this month, people with knowledge of the matter said earlier.

“PE funds usually have a strong voice in most matters concerning strategic action such as sale of assets,” Vaibhav Manek, a partner at accounting firm Knav & Co. in Mumbai, said by e-mail Thursday. “Wherever a dispute or a disagreement arises, it is in the interest of the company concerned to defer to the views of the PE fund that has taken the investment risk.”

Electricity Sales

Essar Power raised 3.5 billion rupees ($52.2 million) from IDFC’s India Infrastructure Fund in 2009 through a sale of optionally convertible redeemable preference shares, two of the people said. The money was to be used for financing the equity of its ongoing projects, according to a statement at the time.

The IDFC fund’s investment agreement allows it to request a redemption of its holdings if Essar Power sells at least 5 billion rupees of assets, according to documents obtained by Bloomberg. The fund also contends that terms of Essar Power’s deal to sell energy to affiliate Essar Steel Ltd. aren’t in the electricity generator’s best interests, the people said.

“Differences of opinion have emerged on some issues and are subject matter of the arbitration between the two parties,” Essar Group said in an e-mailed statement. “The issue is under active discussion by both the parties for amicable settlement.”

Essar Power is a “law abiding corporate” and will comply with the order of the Delhi High Court and the outcome of arbitration proceedings, according to the statement. The ongoing arbitration won’t have any impact on the conglomerate’s plans to monetize its stake in Essar Oil, and the Vadinar plant will continue to supply electricity to Essar Oil under long-term contracts, it said. IDFC declined to comment in an e-mailed statement.

Rosneft Purchase

Essar Power plans to transfer control of the Vadinar power plant to Essar Oil, according to the people. Russian state energy producer Rosneft PJSC and commodities trader Trafigura Pte are in talks to buy a stake in Essar Oil, which would give the Ruias money to pay back loans, people with knowledge of the matter said earlier.

IDFC was due 11.8 billion rupees from Essar Power at the end of March, according to two of the people. The Indian company and IDFC have started discussions on settling the outstanding amount, the people said.

The India Infrastructure Fund is run by IDFC Alternatives’s infrastructure arm, which has $1.8 billion under management, according to its website.

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