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Sensex Down; Banks Gain on Essar Oil Deal; ICICI Bank Up 7%
Mon, 17 Oct Closing

The Indian share markets concluded the day on a negative note, with banking sector being the only gainer while auto stocks & capital goods stocks led the losses. At the closing bell, the BSE Sensex closed lower by 144 points, whereas the NSE Nifty finished lower by 63 points. The S&P BSE Midcap finished the day down by 0.9% & the S&P BSE Small Cap finished up by 0.5%.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.26%, while the Hang Seng led the Shanghai Composite lower. They fell 0.84% and 0.74% respectively. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.83% while Germany's DAX is off 0.65% and France's CAC 40 is lower by 0.38%.

The rupee was trading at Rs 66.78 against the US$ in the afternoon session. Oil prices were trading at US$ 50.23 at the time of writing.

Indian banks soared today after Essar Group confirmed it has agreed to sell an oil unit to a consortium led by Russia's Rosneft. ICICI Bank led with 6.3% gain, followed by Axis Bank's 2% and State Bank of India's 1.7% gain. These banks have a large exposure to the Essar group and weak financial conditions of the group had raised the concerns over assets quality.

Reportedly, ICICI Bank has a significant exposure to the Essar group, which has a total debt of around Rs 900 billion. Essar Oil deal may directly benefit ICICI Bank's loan exposure. Essar is planning to reduce its group debt of Rs 880 billion by more than 50% using the Rs 861 billion proceeds that it will receive in the all-cash deal worth US$ 13 billion.

Further, the all-cash deal will give Rosneft and its partners control of Essar's 20 million tonne refinery in Gujarat, and its retail fuel outlets in India. This is the biggest foreign acquisition ever in India and Russia's largest outbound deal, the reports noted.

Rosneft bought a 49% stake in Essar Oil's refinery, port and petrol pumps. While Netherland's Trafigura Group Pte and Russia's United Capital Partners split another 49% equity equally. The remaining 2% will be held by minority shareholders after delisting of Essar Oil.

Moreover, Essar Group currently has a US$17.8 billion of debt. The deal also factors in Essar Oil's debt of about US$4.5 billion and about US$2 billion debt with the port company. This deal is also a significant step in the process of deleveraging the balance sheets of Indian corporates, the reports noted.

Moving on to the news from BRICS Summit, in order to further strengthen the global governance architecture, five-nation group BRICS (Brazil, Russia, India, China and South Africa) have agreed to set up an independent rating agency based on market-oriented principles. The BRICS groups had earlier expressed concerns against the working of the rating market, currently dominated by US-based agencies Fitch, Moody's and S&P, stating that western credit rating agencies are unfair and have a pessimistic view towards developing nations and an optimistic one towards developed countries.

A joint declaration issued after the 8th BRICS Summit stated that they would be exploring the possibility of setting up an independent BRICS Rating Agency based on market-oriented principles, in order to further strengthen the global governance architecture.

To meet the funding requirements of the members, the BRICS countries have already set up New Development Bank (NDB), which became operational last year. Batting for a new credit rating agency backed by BRICS group, NDB president K V Kamath expressed concerns over methodologies of the big three global agencies saying that these are constraining growth in emerging nations. The ratings of multilateral banks like the BRICS-promoted NDB are affected due to the parent countries' sovereign ratings despite having deep capital buffers.

Meanwhile, The Khemka family's SUN Group, China National Gold Group Corporation, Russian sovereign investment fund Far East and Baikal Region Development Fund, and two other partners from Brazil and South Africa will jointly develop Kluchevskoye gold deposit in eastern Siberia in the first BRICS investment project.

The proposed joint venture aims to develop the Kluchevskoye gold deposit, located in Chita region of Siberia, into a significant open pit mine and heap leach operation with an expected production rate of 12 million tonnes of ore per year and gold dore production of over 6.5 tonnes per annum, as per feasibility study done by Changchun Gold Design Institute. The pre-production investment is expected to be US$400-500 million.

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Feb 22, 2018 09:19 AM