London-listed Essar Energy has decided to sell its 50% stake in its joint venture refinery in Mombasa, Kenya, to the government of the East African country for $5 million as the company has doubts on the feasibility of funding an upgrade at the plant.
The company's subsidiary, Essar Energy Overseas, has exercised a put option under its shareholders’ agreement to sell its stake in Kenya Petroleum Refineries (KPRL) to the government of Kenya, which owns the remaining 50% interest. The deal price represents a $2- million loss on Essar Energy's original investment in the Kenya refinery in July 2009, when it acquired its 50% stake in KPRL for a total consideration of $7 million from BP, Chevron and Royal Dutch Shell.
The sale of the Kenya refinery comes at a time when Essar group companies are looking to pare heavy debt levels. The steel business of the Ruias-promoted Essar group was recently downgraded to ‘default’ grade by ratings agency CARE.
Essar Energy said the decision to sell the refinery follows a series of studies by international consultants into the technical, economic and funding elements of an upgrade of the Mombasa
"Following these studies, Essar Energy believes that the upgrade is not economically viable in the current refining environment," the company said in a media statement.
Under the terms of the shareholders’ agreement established with the government of Kenya at the time of the acquisition, Essar Energy had the right, under certain conditions, to exercise a put option under which the government of Kenya would buy Essar Energy’s 50% share of KPRL for $5 million.