Stanchart to get $2.9b repayment from Essar

Stanchart booked its first loss in more than a quarter century due to a sharp drop in revenue and surging loan impairments.
Stanchart booked its first loss in more than a quarter century due to a sharp drop in revenue and surging loan impairments.PHOTO: REUTERS

MUMBAI • Standard Chartered can finally start to move beyond its woes in India.

The lender is set to receive a US$2.1 billion (S$2.91 billion) repayment in the next few weeks from Essar Global, the steel-to-power conglomerate that has been one of its most problematic borrowers in the country, people with knowledge of the matter said.

Standard Chartered may be able to write back around US$100 million of provisions it made to cover potential losses on Essar Global loans, according to the people, who asked not to be identified as the information is private.

The bank, which gets most of its business from emerging markets, last year booked its first loss in more than a quarter century due to a sharp drop in revenue and surging loan impairments.

Loan impairments from its ongoing business rose in the first half of this year, due largely to provisions connected to Indian clients and the commodities industry.

A repayment would show progress in the revamp plan of Standard Chartered chief executive officer Bill Winters, who has been shrinking the bank's balance sheet and tightening lending standards since taking his position last year. 

Standard Chartered's woes in India are partly the result of an expansion there that failed to fully factor in the risk of lending to companies like Essar Global, current and former bank employees said in November last year, speaking on condition of anonymity. 

"This repayment is large enough to make a dent in their impaired asset pile and will give a leg up to the bank's turnaround plan," Bengaluru-based head of research at Aditya Trading Solutions Rethish Varma, said yesterday. Shares of Standard Chartered rose 1.8 per cent to close at HK$64.25 in Hong Kong yesterday.

Standard Chartered is one of the biggest winners from Essar's deal to sell its refinery arm and related facilities to a group of investors including Rosneft PJSC at a US$13 billion enterprise value, Citigroup wrote in a research note earlier this week.

The bank's non-performing loan portfolio may be reduced by about 20 per cent if the Essar debt is repaid, according to Citigroup, which reiterated its "buy" rating on Standard Chartered.

Essar Global, owned by the billionaire Ruia brothers, has been grappling with debt after it embarked on an US$18 billion spending spree before commodity prices fell.

Standard Chartered, which has about US$3.1 billion of outstanding lending to Essar Global, plans to replace around US$400 million of its exposure with a loan to unlisted operating company Essar Ports and will write off the remainder of about US$600 million, people with knowledge of the matter said this week.

A representative for Standard Chartered declined to comment. Representatives for Essar Global's domestic lenders, ICICI Bank and Axis Bank, said they could not immediately comment.

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A version of this article appeared in the print edition of The Straits Times on October 20, 2016, with the headline 'Stanchart to get $2.9b repayment from Essar'. Print Edition | Subscribe