Essar group's investments make a killing

Essar Global Fund, the Ruia company that invested $1.3 billion in telecommunications, towers and business process outsourcing over the years, made $6.5 billion, a five-fold return, when it flipped these businesses, according to discussions the group has had with merchant bankers.

In contrast, the Essar group's five listed firms have run up a combined debt of Rs 66,000 crore (Rs 660 billion), half the group's Rs 118,000-crore (Rs 1.18 trillion) turnover in the oil refining, steel, power and ports businesses. Three of these listed companies have piled up net losses of over Rs 5,000 crore.

An Essar spokesperson declined to comment on the group's profits through businesses flipped.

A few weeks ago, the group announced it was selling a part of Aegis, a business process outsourcing company, for $610 million. 

Essar's tryst with Aegis began in 2004, when it picked up a small US firm with a revenue of $60 million. The group expanded the business through 16-17 acquisitions for around $250 million.

When Essar sold 60 per cent of the business, including operations in the US, Costa Rica and the Philippines, for $610 million to Teleperformance, Aegis had over 55,000 employees, revenue of around $1 billion and a presence in 15 countries.

Aegis is now valued at over $1 billion, nearly four times what Essar invested. The group is sitting on a return of two-and-a-half times its investment, even as it continues to own Aegis' operations in India and Australia.

The Aegis deal, though, pales in comparison to the one with Vodafone. Early entrants in telecommunications, the Ruias started out with a single city operator's licence for Delhi under the brand name Essar Cellphone in 1995. 

A series of acquisitions later, it consolidated its position as a minority partner in nationwide cellphone operator, Hutchison-Essar.

The merchant bankers with whom the Essar group has had discussions said the group invested around $700 million in its telecom venture. When it sold its 33 per cent stake to Vodafone in 2011, it made $5.4 billion, a staggering return of nearly eight times its investment. 

The group also built Essar Telecom Infrastructure, a cellphone tower company from scratch with investments, including debt, of over $250 million, beginning from 2007. 

Essar Telecom Infrastructure, with its 4,500 cellphone towers, was sold to American Tower Company in 2010 for $415 million.

Perhaps the only investment that lost money for the group was a recent deal to sell Essar Telecom Kenya to Safaricom and Airtel for about $120 million. Essar had invested $200 million in the venture. It also marks the group's exit from all telecom investments. 

Merchant bankers who have worked closely with the Essar group say the Ruias get out of a business when they believe there is not much more to be made or if they have identified another business that can deliver better. 

The Essar group has built an asset base of $18 billion by doubling its oil refining capacity to 20 million tonnes, doubling its steel making capacity and also increasing its power capacity from 3,900 Mw to 6,700 Mw.