Russian President Vladimir Putin, who is on a two-day visit to offered the Ruias-promoted Essar Group a $1-billion credit line and an $8-billion crude supply contract. The steel-to-oil Indian conglomerate on Thursday signed two separate agreements with St Petersburg-based Vneshtorgbank (VTB) and Moscow-based Rosneft.
Andrey Kostin, President and chairman of VTB Bank Management Board, signed a memorandum of understanding with Shashi Ruia, co-founder of Essar Group, to provide a credit facility of up to $1 billion. The deal is intended to finance the continued consolidation of certain assets in Essar Group’s investment portfolio and the strengthening of its capital structure.
The financing follows the $1.2-billion successful transaction arranged in the first half of 2014 by VTB Capital, which acted as financial adviser and financier for the company as it took its key assets private. These assets were listed on the London Stock Exchange.
In the past five years, Essar Group has invested $18 billion across its steel, energy, infrastructure and services businesses. A multinational corporation, it has annual revenues of $39 billion. Essar runs a 20- million-tonne-per-annum (mtpa) refinery at Vadinar in Gujarat, operates 10-mtpa steel mills, owns 108-mtpa port capacity and has nearly 4,000 mw of operating power plants. The group has an asset base of over $30 billion.
In the second agreement, Russia’s top crude oil producer, Rosneft, reached a preliminary agreement to supply Essar Group with 10 million tonne of oil over a 10-year period. At current crude prices, the deal is pegged at $7-8 billion. Currently, Essar Oil has over 405,000 barrels per stream day (bpsd) of crude refining capacity at Vadinar in Gujarat.
The agreement opens new horizons of cooperation between the two countries, thanks to the synergistic potential of the partnership in upstream and downstream areas of two leaders of the oil and gas industry. Thanks to this agreement, Rosneft gets a secure market outlet for oil and oil products while Essar gains a reliable and stable partner as a supplier of oil and oil products for its refining facilities, the companies said in a joint statement.
Commenting on the pact, Igor Sechin, head of Rosneft, said, “The strategic potential of reached agreement between Rosneft — a global leader in hydrocarbon production — and Essar — the world’s leading player in the refining area — can hardly be overestimated. The performance of the terms of the agreement will have a substantial impact on the scale of economical cooperation between Russia and India —our company estimates that the implementation of the contract will fuel significant growth in the goods turnover between two countries. For our Indian partners, the signing of this agreement represents a vital element of basic supplies diversification which, at the same time, will ensure energy security for the country. The Russian counterpart, in turn, will get the possibility of production and supplies volume planning to a new region with considerable growth potential.”