India’s Essar agrees to sell oil arm to Rosneft-led group
US$10.9 billion deal gives energy giant a gateway into the world's fastest growing fuel market
India’s debt-laden Essar Group confirmed on Saturday that it has agreed to sell a 98% interest in its Essar Oil unit to a consortium led by Russia’s Rosneft, giving the energy giant a gateway into the world’s fastest growing fuel market.
The deal will see Rosneft, along with its partners Trafigura and United Capital Partners (UCP), pay US$10.9 billion for Essar’s refining and retail assets. Separately, US$2 billion will be paid toward the acquisition of the Vadinar port in the western state of Gujarat, along with certain import and export facilities.
Sources familiar with the matter had told Reuters on Friday that a deal was imminent.
It will give Rosneft a 49% stake in Essar Oil, with 49% being split equally between Trafigura and UCP. The deal was carefully structured to avoid falling foul of western sanctions against Russia over its role in the Ukraine crisis.
“Rosneft will not get a controlling stake, partly because of these reasons [sanctions]”, Andrey Kostin, head of Russian lender VTB which advised Essar on the deal, told Reuters.
The deal helps Russia to deepen economic ties with India that stretch back to the Soviet era. The purchase is the biggest foreign acquisition ever in India and Russia’s largest outbound deal, according to Thomson Reuters data.
It was finalized after Indian Prime Minister Narendra Modi and Russian President Vladimir Putin met at the BRICS summit in Goa on Saturday.
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, where growth for refined petroleum goods in the next five years is expected to be in the 5% to 7% range.
“Rosneft is entering one of the most promising and fast-growing world markets,” said its chief executive Igor Sechin in a statement.
Separately, Rosneft said it would use Venezuelan crude to supply the Vadinar refinery.
The closing of the transaction is conditional on receiving requisite regulatory approvals that are expected before the end of the first quarter of 2017.
The deal also reduces some of the pressure on Essar, which is controlled by the billionaire Ruia brothers. The group has a presence in oil and gas, steel, ports and power, and has been under pressure from its lenders to reduce its debt burden.
In parallel with the deal, Russian lender VTB said on Saturday it would lend Essar about US$3.9 billion toward debt reconstruction.
Chanda Kochhar, chief executive of ICICI Bank Ltd — one of Essar’s top lenders — welcomed the deal, noting that it has been working closely with Essar to deleverage its stressed balance sheet.
Meanwhile, Russia’s Gazprom chief executive Alexei Miller said on Saturday he hoped to renegotiate a deal to supply liquefied natural gas to India’s Gail (India) Ltd within the next six months.
The two companies are discussing a change to the period in which Gail has to increase its off-take to 2.5 million tonnes of LNG per year, as agreed under a previous contract, Miller told reporters.