The Essar group has agreed to sell Essar Oil and Vadinar port to Russian oil major Rosneft and a consortium of oil trading firm Trafigura and private investment group United Capital Partners for $12.9 billion (Rs 86,100 crore), making it the largest ever foreign direct investment in India.
Essar will sell 49 per cent of Essar Oil to Petrol Complex Pte Ltd, a subsidiary of PJSC Rosneft Oil Company in the first sale. The second stage envisages the sale of the remaining 49 per cent to Kesani Enterprises Company (owned by a consortium led by Trafigura and United Capital Partners). The total enterprise valuation of the sale of Essar Oil works out to Rs 72,800 crore ($10.9 billion).
An additional Rs 13,300 crore ($2 billion) will be paid for the acquisition of Vadinar Port, which has world-class storage and import/export facilities.
The business transaction was announced in the presence of Prime Minister Narendra Modi and Russian President Vladimir Putin at the BRICS Summit in Goa on Saturday.
The all-cash deal encompasses Essar Oil’s 20 million tonne refinery in Gujarat, India, and its pan-India retail outlets. The closing of the transaction is conditional upon receiving requisite regulatory approvals and other customary conditions. The parties expect to obtain the relevant approvals before the end of the first quarter of 2017.
Essar Group chairman Shashi Ruia said: “It is a historic day for Essar. The monetisation of our stake in Essar Oil will help drive the next level of growth for our other businesses.”
According to Igor Sechin, CEO, Rosneft, this is a significant milestone as Rosneft is entering one of the most promising and fast-growing world markets. “At the same time, this project provides unique opportunities for synergies with the existing assets of the company and is consistent with Rosneft’s enhanced presence in the fast growing markets of other APR countries, such as Indonesia, Vietnam and The Philippines,” Sechin said.
Essar Oil’s 20 million tonne oil refinery in Vadinar, which accounts for 9 per cent of India’s total refining output, is supported by a 1,010 MW captive power plant, and complemented by a network of around 2,700 operating retail outlets. The additional Rs 13,300 crore that the new stakeholders have agreed to pay is for the 58 million tonne deep draft port in Vadinar that helps in importing crude and exporting finished products.
Rosneft Oil is one of the world’s largest petroleum companies with revenues in excess of $80 billion. The company’s main business activities include exploration & production, refining and product marketing in Russia and across countries in North America, Latin America, Europe, Asia and the Middle East. Trafigura Group is one of the world’s leading independent commodity trading and logistics group of companies with revenues of approximately $100 billion. United Capital Partners (UCP) is a large independent Russian private investment group with investments of over $3.5 billion in various industrial sectors.
Bankers welcomed the acquisition as the deal will help the Essar group to cut its debt levels by around Rs 45,000 crore. “I welcome the announcement of the acquisition of Essar Oil by the Rosneft-led consortium. This deal is the largest ever foreign acquisition in India. It proves the attractiveness of the Indian energy market to foreign investors as India is one of the fastest growing fuel consuming economies in the world,” said Chanda Kochhar, MD & CEO, ICICI Bank.
“This deal is also a significant step in the process of deleveraging the balance sheets of Indian corporates. ICICI Bank has been closely working with various companies including the Essar Group to help them deleverage their stressed balance sheets. We will continue working towards this objective with others,” Kochhar said. The deal will give Rosneft a strong foothold in the Indian market that will witness robust demand growth for petroleum products in the long term. The growth for refined petroleum products in the Indian market for the next five years is expected to be in the 5-7 per cent range. Essar Oil was delisted from Indian stock exchanges in December last year.