Russia’s Rosneft’s much-delayed buyout of the single-largest controlling stake in India’s Essar Oil is finally complete, making it the biggest ever foreign acquisition of an Indian company. The deal will also help the largest ever deleveraging exercise in India.
Russia’s largest oil producer Rosneft’s much-delayed buyout of the single-largest controlling stake in India’s Essar Oil is finally complete, making it the biggest ever foreign acquisition of an Indian company. The state-run oil exploration and production company Rosneft said on Monday that a consortium led by it has completed the delayed takeover of more than 98% equity stake in the private oil refining and marketing Essar Oil for $12.9 billion, or about Rs 83,000 crore, closing a deal agreed in October last year. While Rosneft will acquire 49.13% equity stake in Essar Oil, commodity trader Trafigura and a Russian fund UCP will pick up another 25% stake each. The acquisition has another superlative attached to it — by helping Essar Group cut $11 billion in debt, it will be the largest ever deleveraging exercise in India. It is also the largest foreign fund outflow from Russia. We take a look at four most interesting facts about the mega acquisition.
Debt-free: The acquisition comes as a major relief to the Essar Group, which is reeling under a heavy debt burden and is under tremendous pressure to repay its outstanding loans and cut the debt load. Essar Group will cut its debt by about $11 billion (over Rs 70,000 crore), Prashant Ruia, Director, Essar Capital said at a press conference. “This is the single largest deleveraging ever undertaken in Indian corporate history,” Prashant Ruia said, adding the deal has helped to cut the group’s overall debt by half.
Refinery gains: The acquisition is expected to augment Rosneft’s oil refining output by 20% this year, a previous news report had said. The deal will give Rosneft and its partners control of Essar Oil’s 400,000 barrels per day (bpd) Vadinar refinery in western Gujarat, along with a port terminal and power plant that helps feed the refinery.
Retail footprint: It’s not only the increased refining output that is on the mind of Rosneft. The acquisition gives Rosneft the control of Essar Oil’s 2,700 operational retail fuel pumps. Private oil companies in India are keen on a vast expansion of their fuel retailing businesses given the huge growth potential in the industry on the back of the rising vehicle population in the country. private petrol and diesel retail companies are expected to ramp up their market share to 12-15% by then from 4-5% in FY16, with Essar Oil and Reliance Industries expected to add 6,000-8,000 fuel retail outlets by the financial year 2020-21.
All the way to the bank: indian banks, who have lent money to the Essar Group, cheered the deal. Shares of Axis Bank and ICICI Bank rose on Monday on the news of the deal being completed, helping to trim the losses on the benchmark Sensex. Both the private banks have a huge exposure to Essar Group. Chanda Kochhar, MD & CEO of ICICI Bank, said that the transaction will help in reducing the lender’s exposure to Essar Group by about 50%. Prashant Ruia, CEO of Essar Group, said the company has to repay about Rs 4,000 crore of debt to the Indian banks.