Ruia-owned Essar Group on Saturday sealed a $13-billion (Rs 86,100 crore) deal to sell 98% stake in its flagship 20 million tonnes per annum refinery to a consortium led by Russia’s state-owned energy giant Rosneft, along with Moscow-based private fund United Capital Partners and Switzerland-based commodity trading firm Trafigura. The deal was concluded on the sidelines of the ongoing BRICS summit in Goa.
“We have sealed the landmark deal and we would see the highest foreign direct investment (FDI) coming into the country,” said Prashant Ruia, Essar director. The deal is expected to be concluded in the next three months. The deal also includes nearly 2,700 fuel stations and Vadinar Port.
The Ruia-Rosneft deal marks one of the highest FDI inflows into India’s energy sector in the past more than five years.
How the deal is framed
Essar Energy Holdings and Oil Bidco (Mauritius) — which control Essar Oil — have signed separate agreements for the 98% stake sale.
The first outlines the sale of 49% to Petrol Complex, a unit of Rosneft. The second sees the remaining 49% sold to Kesani Enterprises — owned by a consortium led by Trafigura and United Capital Partners. Additionally, acquisition of 58 million tonne deep draft port in Vadinar
In 2010, Mukesh Ambani-promoted Reliance Industries sold 30% stake in 21 oil and gas blocks, including the much-touted KG-D6, to UK’s BP for $7.2 billion. The multi-billion dollar deal would help Essar Group to cut down its mounting debt, which is to the tune of R88,000 crore at the group level. “We expect to reduce the overall debt in the group by about 50%,” Ruia told FE, adding that the enterprise value of the transaction also covers the debt on the books of Essar Oil. “Equity value will be on or a little higher than $5.8 billion at which the Essar Oil de-listing has taken place,” Ruia explained.
Essar Group has taken loans from nearly 11 banks, including State bank of India, ICICI Bank and Standard Chartered. The enterprise value of the deal — $12.9 billion — would also include Essar Oil’s debt of $4.5 billion, about $2 billion debt with the port and also $2.5-$3 billion dues on crude oil payments to Iran, say analysts. The $12.9-billion, all-cash deal is being framed under two transactions. The first sale and purchase agreement envisages the sale of 49% to Petrol Complex (a subsidiary of Rosneft Oil); the second envisages the sale of the remaining 49% to Kesani Enterprises Company Limited (owned by a consortium led by Trafigura and United Capital Partners) at an enterprise valuation of R72,800 crore ($10.9 billion).
An additional R13,300 crore ($2 billion) will be paid for the acquisition of Vadinar Port, which has world-class storage and import/export facilities. Bloomberg quoted Andrey Kostin, VTB chief executive, saying that Russia’s VTB Bank PJSC will lend Essar $3.9 billion to restructure debt.
Post Saturday’s deal, the remaining 2% is held by minority shareholders after delisting of Essar Oil. The closing of the deal is conditional upon receiving requisite regulatory approvals and other customary conditions. The companies expect to obtain the relevant approvals before the end of this year. Essar said the companies have signed an agreement according to which the new promoters would continue with the “Essar Oil” brand name.