Rosneft, Trafigura-UCP to gain 49.13% stake each in Essar Oil

21 Aug 2017


A consortium led by Russian oil major Rosneft today announced that it had successfully closed a $12.9 billion deal to acquire private refiner Essar Oil Ltd, strengthening ties between the world's largest oil producer and India, the fastest growing fuel consumer (See : Essar Oil completes $12.9 bn sale of India assets to Russia's Rosneft).

An investment consortium comprising Swiss commodity trading firm Trafigura and Russian private fund United Capital Partners (UCP), has also announced the closure of their acquisition of a separate 49 per cent share of EOL.

Rosneft will get a 49.13-per cent stake in Essar and the Trafigura-UCP consortium will get another 49.13-per cent stake via Kesani Enterprises Company Limited.

The remaining 1.74 per cent will be held by retail shareholders, Essar said in a press release.

"For Essar, the closure of this landmark transaction ushers in a new phase of growth across our portfolio of businesses that hold great promise in India's enduring development story,'' Essar founder Shashi Ruia said statement.

The deal has helped Essar de-leverage its portfolio substantially and reduced debt by over Rs70,000 crore, Ruia said in a press conference.

Rosneft chief executive Igor Sechin said in a separate statement, ''Together with our partners we intend to support the company to significantly improve its financial performance and, in the medium term, adopt an asset development strategy.''

A Rosneft statement added, ''A platform for further development of international trading – entering the high premium markets of the Asia Pacific region and South East Asia has been created.''

The Russian firm stands to gain from the over 3,500 retail pumps operated by Essar in India on the back of pricing deregulation of the country's retail oil market.

From the Roseneft deal, $3.5 billion will come to India. Rs4,000 crore of the deal will be used to pay debt from Indian banks, LIC and insurance companies, Ruia said.

Shareholders who did not participate in delisting process will get shares in the holding company.

The deal includes Essar Oil's 20 MTPA, 400,000 barrel-per-day oil refinery in Vadinar, its pan-India network of retail outlets and the associated refinery infrastructure.

It also includes the Vadinar Port, which has capacity of 58 million tonnes and the Vadinar plant - a 1,010 MW state-of-the art, multi-fuel unit that supplies both power and steam to the Vadinar refinery.

The consortium has picked up Tony Fountain, a former trading veteran from its shareholder BP, to run Indian operations.

Fountain, who was chief executive for refining and marketing at Indian conglomerate Reliance Industries Ltd from January 2012 to February 2016, will be non-executive chairman of the merged entity, three sources said. Fountain did not comment on his appointment.

The deal helps Russia to deepen economic ties that stretch back to the Soviet era. Initiated about two years ago, the will help Rosneft in gaining access to India's rising fuel retail market.

Rosneft and Trafigura are the latest international companies after Royal Dutch Shell and BP to enter the Indian fuel retailing market.

Rosneft may supply Venezuelan oil to Essar's Vadinar refinery after a deal to buy a stake in the Indian company is finalised, the Indian company's managing director L K Gupta told Reuters in August last year.

The Vadinar refinery possesses high feedstock flexibility with heavy grades from Latin America accounting for more than half of all the feedstock processed. The refinery's configuration is one of the most technologically complicated in the Asia-Pacific region and has significant prospects for expansion in development of the petrochemical production.

''The availability of all the necessary infrastructure (a deep-water port, storage terminals and own power station are part of the transaction), as well as Rosneft's shares in upstream projects in Venezuela and working offtake contracts with PDVSA will provide Rosneft with significant operational synergies and help improve the refinery's economics. A further synergy will be derived from cross-supplies of oil products to Asia Pacific markets,'' Rosneft said.

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