Rosneft-led group buys Essar Oil and related operations for $12.9 bn

15 Oct 2016

A consortium of Russian oil giant Rosneft and the Netherlands-based Trafigura Group Pte and Russian investment fund United Capital Partners its partners today announced the acquisition of 98 per cent stake in Essar Oil, India's second-biggest private sector oil firm and its related operations, in a $12.9 billion all-cash deal.

State-owned Rosneft, the world's largest oil producer, bought a 49 per cent stake in Essar Oil's refinery, port and retail chain of 2,700 petrol pumps while its partners – the Netherlands-based Trafigura Group Pte, one of the world's biggest commodity trading companies, and Russian investment fund United Capital Partners - acquired another 49 per cent equity.

Essar Energy Holdings Limited and Oil Bidco (Mauritius) Limited - companies incorporated and managed under the laws of Mauritius - the controlling shareholders of Essar Oil Limited (EOL) have entered into separate definitive agreements for the sale of 98 per cent of EOL, at an enterprise valuation of Rs72,800 crore ($10.9 bn).

Essar oil will be paid an additional Rs13,300 crore ($2 billion) 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, on the sidelines of the BRICS Summit in Goa.

The all-cash deal encompasses EOL'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 this year.

EOL operates one of the world's most complex refineries and runs India's largest private sector retail network and its acquisition will give Roseneft a strong foothold in the Indian market that is witnessing robust demand growth for petroleum products.

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.

EOL'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.

The deal includes Essar Oil's debt of $4.5 billion and about $2 billion debt with the port company and power plant. Also, the near $3 billion dues to Iran for past oil purchases will continue to be on Essar Oil books.

Rosneft Oil Company is the world's largest petroleum company with revenues in excess of $80 billion. The company's main business activities include exploration and 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.

The transaction is the single largest tranche of foreign direct investment in India, and re-establishes the image of India.

Earlier in 2007, Essar Group, together with Hutchison Whampoa, had sold their telecom joint venture to Vodafone in an $11.1-billion transaction. With the current transaction, this is the second instance that Essar has brought in world leaders in the sector to participate in the India growth story.

 ''It is a historic day for Essar. The transaction demonstrates our unique ability to build world-class assets and create immense value in our businesses. The monetisation of our stake in Essar Oil will help drive the next level of growth for our other businesses,'' Essar Group chairman Shashi Ruia said.

''We have once again reinforced our unique expertise in project incubation, execution, value creation and monetisation. We have established world-class assets that have attracted the attention of leading global companies and investors. The deals we have done have led to an FDI infusion of more than $30 billion into India,'' Prashant Ruia, director of Essar, said.

''This is a significant milestone for the Company. 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,'' Igor Sechin, CEO of Rosneft, said.

''This is an important and exciting investment. Essar Oil occupies a strategic position in the global oil market and owns world-class refining and infrastructure assets that will create multiple synergies with our trading business,'' Jeremy Weir, chief executive of Trafigura, said.

''We are very pleased to reach an agreement to acquire shares of Essar Oil Limited. This is a top-tier asset operating in the promising Indian market, one of the largest and rapidly developing economies in the world.

The announced transaction establishes a strategic partnership between our investment consortium members. Deal participants have extensive operational and financial expertise, which we believe will help to unlock significant value and provide strong financial results for all investors,'' Ilya Sherbovich, managing partner of UCP, stated.