Billionaire Ruia brothers are likely to sign this weekend a $7 billion deal to sell most of their holding in the flagship Essar Oil Ltd to Russian giant Rosneft PJSC, commodities trader Trafigura Group Pte and some financial investors.
While Rosneft, the national oil company of Russia, is likely to buy 49 per cent stake in Essar Oil that owns a 20 million tons refinery at Vadinar in Gujarat, Trafigura may pick up 24 per cent. The Ruia-family may just keep 5-7 per cent and shed the remaining in favour of small investors.
The deal is likely to be inked during Russian President Vladimir Putin’s visit to Goa for the BRICS Summit on October 15-16, sources privy to the transaction said.
Sources said originally Ruias wanted to shed only 49 per cent in favour of Rosneft but the USD 3.5 billion they would have got from the Russian company wasn’t enough to pay of the $4.5 billion debt on the company’s books.
A larger 74 per cent stake was offered to Rosneft but that idea was dropped as the Russian company faces US sanctions and by a virtue of its majority stake Essar Oil too would have come on that list.
At this stage, Trafigura was roped in and offered 24 per cent stake. Trafigura, which has close ties to Rosneft, was to finance its acquisition by taking loan from a Russian bank.
Sources said Trafigura’s stake would go up to 30 per cent and another 10-15 per cent interest is likely to be picked up by unnamed financial investors.
The deal includes the Vadinar refinery as well as the Vadinar port and more than 2,500 petrol pumps. A power plant serving the refinery as well as company’s coal-bed methane (CBM) blocks are unlikely to be included in the deal.
As part of the deal, Rosneft-Trafigura will also takeover the debt of Essar Oil, sources said.
Last year US Treasury’s Office of Foreign Assets Control (OFAC) had issued a Crimea Sanctions Advisory, adding Rosneft and its subsidiaries to its Sectoral Sanctions Identifications List in retaliation for the Russian “invasion” of eastern Ukraine.
Entities on this list are subject to economic and trade sanctions on grounds that they pose a risk to US national security and are in violation of US foreign policy objectives.
OAO Rosneft had in March signed a non-binding agreement to buy a 49 per cent stake in Essar Oil. This was a follow-up of the July 2015 a deal wherein Rosneft was to supply Vadinar refinery with 200,000 barrels of crude per day (10 million tons a year) for 10 years.
Sources said Trafigura may at a later stage transfer its stake to Rosneft.
Trafigura handles most of the crude exported by Rosneft. This has propelled Trafigura to being the world’s second- biggest independent oil trader, handling more than four million barrels a day.