Essar to sell oil arm to Rosneft-led group

Reuters
Andrei Kostin, CEO of Russia’s bank VTB, Igor Sechin, CEO of Rosneft, and Ravi Ruia, vice chairman of Essar Group, attend an exchange of agreements event in Benaulim, in the western state of Goa. (Reuters)

GOA, India: India’s debt-laden Essar Group confirmed on Saturday that it has agreed to sell a 98 percent 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 $10.9 billion for Essar’s refining and retail assets. Separately, $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 percent stake in Essar Oil, with 49 percent being split equally between Trafigura and UCP. The deal appears to have been carefully structured to avoid falling foul of western sanctions against Russia over its role in the Ukraine crisis.
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 a summit in the western state of Goa on Saturday.
The all-cash deal will give Rosneft and its partners control of Essar’s 20 million ton 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 percent to 7 percent range.
“Rosneft is entering one of the most promising and fast-growing world markets,” said Rosneft CEO Igor Sechin in a statement, adding that the deal gives it “unique opportunities for synergies” with its existing assets.
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 $3.9 billion toward debt reconstruction.
Chanda Kochhar, CEO of ICICI Bank Ltd. India’s second biggest lender and one of Essar’s top lenders, welcomed the deal, noting that it has been working closely with Essar to deleverage its stressed balance sheet.