Not out of the woods yet: (Clockwise from bottom right) Essar Group's Ravi Ruia, Shashi Ruia, Anshuman Ruia & Prashant Ruia

It's a new day at the mouth of the Tapi river, roughly 25 km off Surat, towards the tip of Hazira's bustling industrial belt. The tide has ebbed, and a wintry but gentle breeze drifts across the jetty built by the Ruias of the Rs 5,700-crore Essar Group as a part of its 2.2 million tonne steel plant. On the wharf, gazing into the distance, is Captain S. Das, Vice President (Operations), Essar Shipping, who's running a film of the day's export shipments in his mind. In a yard adjacent to the port, hundreds of hot rolled coils of varying sizes (ranging from 10-25 tonnes) sit neatly side by side in zones earmarked by destination. One placard dug into the ground says Jakarta, another China, and yet another Dammam (in the Middle East). Giant cranes are loading the coils onto mini-bulk tugs that are docked at the jetty. By afternoon the tide will come in, and these small ships will steam across to the high seas, where two giant floating cranes will load roughly 3,000 tonnes of steel onto a bulk carrier of 110,000 tonnes. By March 31, 2003, roughly 40 per cent of 1.8 million tonnes of steel produced by Essar in the current year would have moved into overseas markets via this route, making it the largest Indian exporter of flat steel. Also, 1.8 million tonnes will be the highest Essar's steel plant has ever been ramped up to.

Since the plant came on stream in 1996, the Ruias haven't had too many opportunities to indulge in such production and export step-ups. Only a year after production started, steel prices slipped into an unforeseen free-fall, eventually hitting a 40-year-low of $160 per tonne. For the highly-leveraged Essar Steel-its total debt stands at Rs 5,400 crore-this spelt disaster, as interest costs as high as Rs 650 crore a year ate into whatever meagre profits it could show at the operating level. Factor in the meaty depreciation charges and it is easy to see why the accumulated red on the books stands at a little over Rs 1,700 crore. Defaults on interest payments didn't invoke any sympathy, either.

If the steel history sounds hopeless, the four-year delay in the Ruias' ambition of putting up a 12 million tonne refinery off the Vadinar coast in Jamnagar, Gujarat, completes a truly despairing picture. As of date, at least 36 per cent of the engineering, procurement and construction is yet to be completed since work on the project stopped in 1999. Result: A cost overrun of at least Rs 2,000 crore, and a debt exposure of close to Rs 5,000 crore, even as neighbour in Jamnagar, one Reliance Petroleum, contemplates an expansion from 27 to 40 million tonnes.

Here's some perspective into the group's plight: Most of its Rs 7,625-crore earnings before interest between April 1996 and March 2002 have been virtually wiped out by interest and principal payments of Rs 4,500 crore and Rs 3,200 crore, respectively. Let's put it this way: If even one of these two mega-projects (steel and refining) doesn't pan out, that failure will be enough to sound the death-knell of the Essar Group, whose total debt exposure stands at a staggering 13,800 crore. To be sure, the Ruias have already been written off by the stockmarkets, and by most of its 13 lakh shareholders, from whom the Ruias have cumulatively raised close to Rs 3,000 crore.

Not everybody believes that just falling commodity prices and burgeoning finance costs did the group in. Charges of siphoning off publicly-raised funds and manipulation of the institutions have persisted over the years. As a result, the perception has gained ground that the Ruias are nothing more than thieves in pinstripes. The swank 21-storey blue-glass Essar House-in which the brothers Ruia sit at two ends of an office on the 20th floor that's as big as a tennis court-and an office-cum-residence on the outskirts of New York juxtaposed against dismal results and unrewarded shareholders only perpetuate that perception. As do the fast cars-Shashi and Ravi drive Jaguars and Shashi's youngest son Anshuman a bmw. And a two-storey bungalow overlooking the sea in Mumbai's upscale Walkeswar (the Ruias stay in four individual apartments in that bungalow, which has one common kitchen). Or Ravi and Prashant's nri status and a farmhouse in the hills of Lonavala. And a plush Delhi office-cum-residence in Jorbagh...

"The feeling is that although shareholders have been hit badly, the lifestyle of the Ruias hasn't in the least," points out a fund manager. "It's time for the government to change the management. The truth is, they are known defaulters. Whether they are willful defaulters or useless entrepreneurs I cannot say, but they could well be both," adds Amar Singh, General Secretary, Samajwadi Party.

The Ruias for their part have left no stone unturned to absolve themselves of the numerous charges hurled at them, many of them by Amar Singh. And those clean chits have been pouring in, right from the Central Vigilance Commission to the fm to the Law Minister. But the best way for the Ruias to counter those charges is by performing. What could help them do just that is the few silver linings that have appeared on the huge dark cloud threatening for some time now to burst over Essar House.

For starters, the Ruias got a major shot in the arm when the institutions' corporate debt restructuring committee (CDR) agreed to rejig the Rs 15,000-odd crore debt of the steel industry. Essar Steel, which has a Rs 3,200-crore exposure to the Indian FIs, can now convert 40 per cent of that amount into lower-cost foreign debt. Not just that, the average interest rate on their total exposure has been dragged down into the 11-12 per cent range, as against 16-19 per cent earlier, and the tenure of the loan has been extended to 13-15 years. Coupled with rising steel prices and a proposed buyback of the existing foreign debt at a 70-75 per cent discount, the Ruias expect this restructuring to help them not just make profits in 2003-04 but also wipe out most of their accumulated losses.

Points out B.P. Singh, Chief General Manager, IDBI: "Steel prices are moving up, and the projects look viable. If they weren't, we wouldn't be restructuring the loans.''

"We're there in steel," beams Shashi Ruia, the 58-year-old Chairman and architect of the group's core sector blueprint. With prices expected to hold at the $340-350 a tonne-levels the Ruias are projecting a gross profit of Rs 700-800 crore in 2003-04, and the CDR recommendations coupled with the debt buyback proposal, will bring down the interest burden from Rs 650 crore to Rs 350 crore. What's more, if the Ruias do succeed in buying back most of their Rs 2,200-crore foreign debt at a 75 per cent discount, they would have knocked off Rs 1,400-1,500 crore off their books, which can be set off against the accumulated losses on the balance sheet straightaway. Result: A clean slate.

FINANCE MINISTER JASWANT SINGH AND FORMER FM MANMOHAN SINGH (L TO R)
Clean chits have been pouring in from all quarters---from the CVC to the present and former FMs to the law minister

Sleepless In Jamnagar

If the steel project is finally looking viable, the 12 million tonne refinery is at last beginning to look a reality. For four years now, the only action at the site of the Ruias' proposed 12 million tonne refinery has been the maintenance and monitoring of the equipment procured. That delay has been thanks largely to an equity gap of Rs 582 crore and the FIs' subsequent decision to clamp down on disbursements. In the lavish 21st floor dining room, over a spartan salad lunch-Shashi's sons, Prashant and Anshuman, nibble on an equally austere vegetarian thali as they listen on-Vice Chairman, Ravi Ruia (54), spells out the reasons for the hope brewing on the Vadinar horizon.

The first of those can be summed up in two words: 9 per cent. That's the rate at which the institutions might just about be willing to recommence disbursements-Rs 1,000 crore has yet to be disbursed-to the Ruias. If ICICI Bank (the lead institution, whose officials refused to comment on the issue) does agree to that rate, it will be a huge triumph for Essar Oil, which has been accustomed to borrowing at 20-21 per cent in the late nineties. Then, ABB, the EPC contractor for the refinery, has agreed to temporarily bridge the equity gap of Rs 582 crore (which it will be free to sell later on to a strategic partner) in the project. ''Our equity is tied up, loans are in place. Take into account a sales tax deferral, and we're back,'' says Ravi Ruia, who expects to commission the refinery 24 months from the day work starts, which could be anytime now. The Ruias also stress that at the proposed interest rate, the project looks immensely viable: Cash break-even according to projections should happen at 35 per cent utilisation, and break-even after interest and depreciation at 65 per cent.

Another matter of emphasis for the Ruias is that their other businesses-construction, power, telecom, and shipping-are all in clover. For shipping, in which the Ruias own 33 ships (including six of the world's 80 double-hulled, double-bottomed Suezmax tankers), freight rates are on the up. Power is an assured business thanks to a 20-year purchase agreement with the Gujarat government. A 36-37 per cent partner in the consolidated cellular telecom operations of Hutch (which will hold 49 per cent) will assure the Ruias decent returns on their Rs 500-crore investments. In construction, Essar has Rs 1,000 crore of orders in hand, the major one being a section of the National Highway in the South. And in oil, Essar hopes to put up 1,700 retail outless via the franchise network, and upstream the group is exploring 14,000 sq km for oil and gas and coal-bed methane. The Ruias feel that because of their huge exposure to institutions, the fact that they've created world-class assets worth over Rs 17,000 crore gets overshadowed.

It's still too early to begin writing tales of a turnaround at the Essar Group. The 'ifs' are many, one of the biggest being the foreign lenders' willingness to allow the Ruias to buy back debt at a huge discount. Clearly, it will be many more years before the Ruias are able to steady the ship and even many more before they can reward shareholders. But then there's no other way out: Much of the group's equity is lying pledged with the FIs, which might just be willing to consider Amar Singh's painful recommendation if the non-performance persists. The good news for the Ruias, though, is that the tide is turning. Their time starts now.

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