Rosneft, Trafigura to buy 98% of Essar oil

Bloomberg

Essar Group, controlled by India’s
billionaire Ruia brothers, signed binding agreements to sell a combined 98
percent stake in its refinery unit to Russian energy giant Rosneft PJSC and a consortium of Trafigura and United Capital Partners.
The Indian conglomerate agreed to sell 49 percent each of Essar Oil Ltd. to Rosneft and the consortium for an enterprise value of 728 billion rupees ($10.9 billion), Essar said in a statement on Saturday. The equity valuation will be about $5.8 billion, the price at which the company was delisted, Essar Group director Prashant Ruia told reporters at a briefing in Goa, India.
The all-cash deal includes India’s second-largest refinery at Vadinar, and another $2 billion will be paid for a port terminal and power plant that helps feed the refinery, as well as about 2,700 pumps. All approvals are expected by the end of this year and most of the proceeds will go to retire debt, Ruia said.
Russia has been deepening energy ties with India, which is expected to surpass Japan as the world’s third-largest oil user this year to become the fastest-growing crude consumer through 2040, according to International Energy Agency estimates. India’s state-owned energy companies are investing $5.5 billion to buy stakes in Rosneft’s Vankor and Taas-Yuryakh fields.
“The potential of the Indian market with a rapidly growing economy and rising demand is drawing global players,” said Jagannadham Thunuguntla, head of research at Karvy Stock Broking Ltd. “They want a foothold in the market which is among the very few where fuel consumption is growing at such a pace.”
Essar Energy Holdings Ltd. and Oil Bidco (Mauritius) Ltd. — which control Essar Oil — have signed separate agreements for the 98 percent stake sale The first outlines the sale of 49 percent to Petrol Complex Pte., a unit of Rosneft The second sees the remaining 49 percent sold to Kesani Enterprises Co. — owned by a consortium led by Trafigura and United Capital Partners Russia’s VTB Bank PJSC will lend Essar $3.9 billion to restructure debt, Andrey Kostin, VTB chief executive, told reporters at a separate briefing in Goa Rosneft itself will pay about $3.5 billion for the Essar deal, Kostin said.
The transaction — which Essar said is the single-largest tranche of foreign direct investment in India — was announced on the sidelines of the BRICS Summit, attended by Indian Prime Minister Narendra Modi and Vladimir Putin. It has the support of both their governments, Ruia said. He added that he doesn’t see sanctions on Russia affecting the deal.
For Trafigura, the world’s third-largest oil trading house behind Vitol Group and Glencore Plc, the acquisition is its largest ever energy deal and marks a deepening of its relationship with Rosneft. The trading house is already providing short-term trade finance to the Russian company and is trading a significant chunk of its oil production.
Trafigura, which is owned by its senior employees, said it will finance the purchase through bank finance using its stake in the refinery as collateral plus its own equity. Trafigura said it didn’t plan to tap the bond market for the deal. The Trafigura consortium includes the trader itself with a 49 percent stake, UCP with another 49 percent and Essar with 2 percent. Trafigura will effectively control 24 percent of the refinery. For the trading house, it’s the second attempt to enter the Indian oil refining market, after a failed deal five years ago.