Russia's state-controlled oil giant Rosneft and partners took over India's second biggest private oil firm Essar Oil, in an all-cash deal valued at $13 billion. The deal has an enterprise value of close to $12.9 billion to $10.9 billino being for a 20 million tons a year refinery in Gujarat and over 2700 petrol pumps and, another $2 billion for Vadinar port in Gujarat.
Rosneft bought a 49 per cent stake in the Indian company's refinery, port, and petrol pumps, while Netherlands-based Trafigura Group Pte, and Russian investment fund United Capital Partners split another 49 per cent equity equally. The remaining 2 per cent will be held by minority shareholders. Prashant Ruia, Director, Essar Group, said, "We would be utilising significant portion of the deal proceeds in debt reduction. Group debt will reduce by about 50 per cent." He said the equity value of the deal is "on or about Essar Oil's delisting price of $ 5.8 billion", adding, "We will get to know of that when the deal closes in first quarter of 2017."
Ruia said Rosneft will continue using the brand name for retail operations. "We have signed a branding agreement under which retail outlets will continue to use Essar brand because it is a very strong brand. We are not exiting oil and gas business. We continue to own and operate the Stanlow refinery in UK which is a 12 million tons refinery and has 12-13 per cent market share. Also, the upstream exploration and production business is not part of the deal," he said. Two agreements were signed on the sale. "The first sale and purchase agreement envisages the sale of 49 per cent to Petrol Complex Pte Ltd; the second envisages the sale of the remaining 49 per cent to Kesani Enterprises Company Limited at an enterprise valuation of $10.9 billion. An additional $ 2 billion will be paid for the acquisition of Vadinar Port, which has world-class storage and import/export facilities," the Director said.
According to the deal, Essar Energy Holdings Ltd and Oil Bidco Ltd, which control Essar Oil, signed separate agreements for the 98 per cent stake sale. Russia's VTB Bank PJSC will lend Essar $3.9 billion to restrucutre its debt, while Rosneft will pay around $3.5 billion from its own pocket. "We plan to utilise proceeds from the stake sale to deleverage the Group and pave the way for strategic consolidation and growth in other businesses," Ruia said. Controlled by billionaire Ruia brothers, Essar Oil operates a 405,000 barrels a day refinery in Gujarat. It also has a captive power plant, and a port andterminal facilities. The deal will also strengthen ties between the world's largest oil producer and the world's fastest growing fuel consumer.
The acquisition is the biggest in India, and the largest outbound deal for Russia, and was announced as Indian Prime Minister Narendra Modi met Russian President Vladimir Putin during a meeting of the BRICS.
