Essar Oil completes $13-bn sale to Rosneft in largest FDI deal

Mumbai, August 21

Debt-laden Essar group on Monday concluded the sale of its crown jewel Essar Oil, including the captive port, power and retail assets, to Moscow-controlled oil giant Rosneft and a consortium of investors for $12.9 billion, making it the largest FDI into the country.

Signed on October 15, 2016 in Goa on the sidelines of the Brics summit, the deal was held back by domestic lenders.

They will get around Rs 4,000 crore, paid back for over Rs 45,000 crore of loans, as they have "finally elected to stay with the new owner".

Essar Oil has been partnering with Rosenft, the leader in Russian oil sector and also world's largest publicly traded oil and gas company by reserves and liquid hydrocarbon output, since 2015 when it had signed a 10-year crude purchase deal.

The sale transaction involves Rosneft picking up 49 per cent stake in Essar Oil's 20-million tonne Vadinar refinery in Gujarat, a captive port (58 mt) and a power plant (1,010 mw multi-fuel unit) and over 3,500 petrol pumps.

Besides, the Netherlands' Trafigura Group, one of the world's biggest commodity traders, and Russian investment fund United Capital Partners will split another 49 per cent equity among them equally.

While the refinery and retail assets are valued at $10.9 billion the port and related infrastructure assets are valued at $2 billion.

Essar Oil was 98.26 per cent held by Essar Energy Holdings and Oil Bidco Mauritius. While Rosneft, through its arm Petrol Complex acquires 49.13 per cent, Trafigura-UCP consortium (via Kesani Enterprises Co) taken in an equal stake.

The remaining 1.75 per cent will be held by minority shareholders who refused to tender their shares in the delisting of Essar Oil last February, making the complete exit of the Ruias from its crown jewel that used to contribute over 25 per cent of its topline and over 75 per cent of its bottomline.

The Ruias will, however, continue to remain in the oil sector with their British assets and CBM mines here.

These minority shareholders will be paid back according to the margin from the deal as per Sebi's buyback regulations, the company said.

Essar Group director Prashant Ruia, announcing the closure of the deal, said the group will use the proceeds to pare Rs 70,000 crore, or around 60 per cent, of its total debt. Of this, Rs 4,000 crore will go to domestic lenders such as LIC and other state-run insurance companies and a few banks.

"The deal marks three firsts in the country -- the largest FDI ever inflow; largest delevaraging in the history of India Inc and the largest contributor to the nation's FDI inflow. This also marks another first -- the largest outbound fund inflow from Russia to any country," Ruia told reporters.

Essar Group founder Shashi Ruia said this landmark transaction ushers in a new phase of growth across the group portfolio that hold great promise in development story.

With this deal, said Prashant Ruia, "We have completed our monetisation and deleveraging programme, which is the largest undertaken by any corporate in recent years. We have substantially deleveraged our portfolio companies' balance sheets. With the completion of our capex programme of over Rs 1.2 trillion (Rs 1.2 lakh crore), we now look forward to a period of growth in our wider portfolio of businesses."

Congratulating the Essar Group on the conclusion of the deal, oil minister Dharmendra Pradhan said it demonstrates the spirit of dynamic entrepreneurship in our country. "I welcome Rosneft, Trafigura and UCP to participate in the India growth story and wish them success."

ICICI Bank's Chanda Kochhar said with this deleveraging the bank's exposure to the group has been halved.

Rosneft head Igor Sechin, not present at the press meet, said that together with new partners they intend to support the Essar Oil to significantly improve its financials in the medium-term, adopt an asset development strategy.

This deal makes the Essar group's total contribution to the country just in terms of FDI alone to over $30 billion after its sale of telecom arm to Vodafone in 2007 for $11.1 billion and the Aegis BPO recently, Prashant Ruia added.

"While around $5 billion worth of Essar Oil's debt will be taken over by Rosneft the new owner as domestic lenders led by SBI, ICICI Bank, Asix Bank and IDIBI Bank have elected to stay with the Russian company," he said.

"The Group will clear almost 50 per cent of the level debt with the rest of the money, including clearing the almost $3 billion dues to Iran for past crude purchase," he added.

Part of debt that the group owes to Russian lender VTB will also be repaid, Ruia said but refused to quantify.

He said the deal was triggered by VTB some time last year. Out of this $5 billion being transferred to Rosneft, around $4 billion is term debt and $1 billion is the working capital.

LIC, which had some exposure to Essar Power and Port and not to Essar Oil, and key player in delaying the deal, will get around Rs 800 crore, Ruias said but refused to name other lenders who will get paid.

The Essar Oil was held by Energy and Oil Bidco, the Mauritius based holding arm of the Ruias. The refinery was set up 22 years ago with a 3 million tonne annual refining capacity and was scaled up to 20 MT over a period, making it the second largest facility in the private sector.

After this deal, group's asset base stands at $17 billion and revenue of $15 billion and an Ebidta of $2 billion, Ruia said, adding Essar will remain invested in oil & gas through its 9-mt Stanlow Refinery. — PTI