In an all cash deal, Russia’s state-controlled oil giant Rosneft and its partners will acquire India’s second biggest private oil firm Essar Oil for about USD 13 billion.
The acquisition, which is expected to close in the first quarter of 2017, is the biggest foreign acquisition ever in India and Russia’s largest outbound deal.
Rosneft bought a 49 per cent stake in Essar Oil’s refinery port and petrol pumps, while Netherlands-based Trafigura Group Pte, one of the world’s biggest commodity trading companies, and Russian investment fund United Capital Partners split another 49 per cent equity equally.
The remaining 2 per cent is held by minority shareholders after delisting of Essar Oil.
The deal was announced as Indian Prime Minister Narendra Modi met Russian President Vladimir Putin during a meeting of the leaders of the BRICS countries in Goa.
The deal is the single largest foreign investment in the Indian refining sector and will strengthen the ties between the world’s largest oil producer and the world’s fastest growing fuel consumer.
The deal has an enterprise value of close to USD 13 billion, which includes Essar Oil’s debt of USD 4.5 billion and about USD 2 billion debt with the port company and power plant. Also, the near USD 3 billion dues to Iran for past oil purchases will continue to be on Essar Oil books.
Essar Oil, part of a steel-to-ports conglomerate controlled by the billionaire Ruia brothers, operates a 405,000-barrels-a-day refinery at Vadinar in Gujarat. The refining complex also has a captive power plant as well as a port and terminal facilities.
Essar Oil said it has signed two agreements for the sale.
“The first sale and purchase agreement envisages the sale of 49 per cent to Petrol Complex Pte Ltd (a subsidiary of PJSC Rosneft Oil Company); the second envisages the sale of the remaining 49 per cent to Kesani Enterprises Company Limited (owned by a consortium led by Trafigura and United Capital Partners) at an enterprise valuation of Rs 72,800 crore (USD 10.9 billion),” said Prashant Ruia, Director, Essar Group.
Initially, Ruias wanted to shed only 49 per cent in favour of Rosneft but the USD 3.2 billion they would have got from the Russian company wasn’t enough to pay off the USD 4.5 billion debt on the company’s books.
A larger 74 per cent stake was offered to Rosneft but that idea was dropped as the Russian company faces US sanctions and by a virtue of its majority stake Essar Oil too would have come on that list.
At this stage, Trafigura was roped in and offered 24 per cent stake. Trafigura, which has close ties to Rosneft, was to finance its acquisition by taking loan from Russia’s VTB Capital, part of state-controlled bank VTB.
(With inputs from PTI)