Essar Shifted VTB Loans to Mauritius to Evade Sanctions, Then Boosted Borrowing by $1.2bn

TL;DR Essar moved billions of dollars in VTB loans from Cyprus to a Mauritian subsidiary to avoid Western sanctions, then increased its borrowing from the Russian bank by $1.2bn. The shift raised concerns about sanctions circumvention and prompted UK lawmakers to call for an investigation.

Essar Energy, the UK‑listed arm of the Indian conglomerate (LSE: ESS), owns the Stanlow refinery in Cheshire, which supplies about one‑sixth of Britain’s vehicle fuel and serves nine airports. After Russia’s invasion of Ukraine in February 2022, VTB Bank and its chief Andrey Kostin were hit by Western sanctions. UK firms with VTB exposure normally seek a licence from the Office for Financial Sanctions Implementation (OFSI) to continue payments while winding down the relationship.

Instead of applying for OFSI approval, Essar secured Cypriot government consent to transfer the loans to a Mauritian subsidiary. Mauritius was not subject to the same Russian sanctions, allowing the loans to remain on Essar’s books without triggering UK restrictions. The loans were originally held through two Cypriot companies, with Essar Energy as guarantor, according to UK filings.

After the relocation, Essar’s VTB borrowing rose by $1.2bn, taking total exposure to the Russian lender above €3.5bn. Essar Energy’s shares slipped roughly 3% on the London Stock Exchange following the Guardian’s report, while its market cap stood near £1.1bn. The FTSE 250, by comparison, was flat on the same day.

Liam Byrne, MP and chair of the All‑Party Parliamentary Group on Anti‑Corruption, urged UK authorities to examine Essar’s actions, describing VTB as a state‑backed bank financing Russia’s war. He said the restructuring “raises red flags in relation to possible sanctions circumvention.”

The mechanism hinges on jurisdictional arbitrage: by moving the debt to a subsidiary in a sanction‑free zone, Essar argued UK sanctions law did not apply, even though the ultimate beneficiary remained a sanctioned Russian entity. Experts note such structures can obscure the true nature of financial flows and complicate enforcement.

What to watch next: whether the UK’s OFSI or Cypriot regulators launch formal investigations, how any findings might affect Essar’s borrowing costs and share price, and whether other firms with similar offshore loan shifts face scrutiny.