In the biggest inflow of overseas direct investment, Russia’s state-managed oil big Rosneft and its companions on Saturday took over India’s second largest personal oil agency Essar Oil in an all-cash deal valued at about USD 13 billion. Rosneft bought a forty nine per cent stake in Essar Oil’s refinery, port and petrol pumps, while Netherlands-primarily based Trafigura Group Pte, one of many world’s biggest commodity trading firms, and Russian investment fund United Capital Companions break up one other 49 per cent equity equally. The remaining 2 per cent shall be held by minority shareholders after delisting of Essar Oil.
The deal has an enterprise worth of near USD 12.9 billion – USD 10.9 billion being for a 20 million tons a year refinery in Gujarat and over 2,seven-hundred petrol pumps and one other USD 2 billion for Vadinar port in Gujarat. The deal elements in Essar Oil’s debt of about USD 4.5 billion and about USD 2 billion debt with the port firm.
Additionally, the near USD three billion dues to Iran for previous oil purchases will continue to be on Essar Oil books. Trafigura, which has been funded by Russian bank, could promote its stake to Rosneft at a later date.
“We could be utilising significant portion of the deal proceeds in debt discount. Group debt will reduce by about 50 per cent,stated Prashant Ruia, Director, Essar Group.
Essar Group, one in every of India’s largest and most indebted conglomerates, would trim its about Rs 88,000 crore (over USD 13 billion) debt by half and ward off creditor stress.
The forty nine per cent stake Trafigura and UCP are choosing will probably be cut up between the 2 in forty nine:Forty nine ratio while Essar Group will hold the remaining 2 per cent.
Ruia said the fairness worth of the deal is “on or about Essar Oil’s delisting value of USD 5.Eight billion
Of the USD 12.9 billion value, USD 6.5 billion is for the debt with Essar Oil and port company. One other USD 0.5 billion is for working capital, leaving USD 5.9 of fairness worth which is equal to the delisting worth of Essar Oil.
Ruia said as per SEBI order the shareholders of Essar Oil might be paid if the ultimate fairness worth of the deal with Rosneft is larger than the delisting value. “We will get to know of that when the deal closes in first quarter of 2017,he stated.
The acquisition is the most important in India and largest outbound deal for Russia. The all cash deal is expected to close in first quarter of 2017.
The deal was introduced as Prime Minister Narendra Modi met Russian President Vladimir Putin throughout a gathering right here of the leaders of the BRICS countries (Brazil, Russia, India, China and South Africa).
Ruia mentioned Rosneft will proceed to use Essar model for the retail operations. “We have signed a branding agreement beneath which retail shops will continue to use Essar model as a result of it’s a very strong model./p>
“We will not be exiting oil and gas enterprise. We proceed to own and function the Stanlow refinery in UK which is a 12 million tons refinery and has 12-thirteen per cent market share. Additionally, the upstream exploration and manufacturing business will not be a part of the deal,he stated.
He said two agreements were signed on Saturday for the sale. “The first sale and purchase agreement envisages the sale of 49 per cent to Petrol Complicated Pte Ltd (a subsidiary of PJSC Rosneft Oil Company); the second envisages the sale of the remaining 49 per cent to Kesani Enterprises Company Limited (owned by a consortium led by Trafigura and United Capital Partners) at an enterprise valuation of Rs seventy two,800 crore (USD 10.9 billion).
“An additional Rs 13,300 crore (USD 2 billion) will probably be paid for the acquisition of Vadinar Port, which has world-class storage and import/export facilities,Ruia mentioned.
As per the deal, Essar Power Holdings Ltd and Oil Bidco (Mauritius) Ltd which management Essar Oil signed separate agreements for the 98 per cent stake sale.
Russia’s VTB Financial institution PJSC will lend Essar USD three.9 billion to restructure debt, stated Andrey Kostin, VTB CEO. Rosneft itself can pay about USD 3.5 billion for the Essar deal, Ruia said.
“We plan to utilise proceeds from the stake sale to deleverage the Group and pave the way for strategic consolidation and development in different businesses,Ruia mentioned.
Essar Oil, part of a steel-to-ports conglomerate controlled by the billionaire Ruia brothers, operates a 405,000-barrels-a-day refinery at Vadinar in Gujarat. The refining advanced also has a captive energy plant as well as a port and terminal services.
The deal is the single largest foreign investment in the Indian refining sector and will strengthen the ties between the world’s largest oil producer and the world’s fastest rising gasoline client.
“The all-cash deal encompasses Essar Oil’s 20 million tonne refinery in Gujarat and its pan-India retail retailers,Ruia said.
The deal consists of the refinery as nicely as the Vadinar port and greater than 2,seven-hundred retail gasoline stations. The preliminary transaction won’t include a power plant serving the refinery, which may very well be transferred later after getting mandatory approvals.
“The closing of the transaction is conditional upon receiving requisite regulatory approvals and other customary situations. We anticipate to acquire the related approvals earlier than the tip of this 12 months,Ruia mentioned.
Whereas the refining sector is delicensed with 100 per FDI allowed, the deal will not as such want any major regulatory approval in India. It’s going to only want an approval by the Competitors Fee of India.
The 20 million tonne oil refinery in Vadinar accounts for 9 per cent of India’s complete refining output and is supported by a 1,010 MW captive energy plant, Ruia mentioned.
“The extra Rs 13,300 crore that the new stakeholders have agreed to pay is for the fifty eight million tonne deep draft port in Vadinar that helps in importing crude and exporting finished products,he said.
Initially, Ruias needed to shed only 49 per cent in favour of Rosneft however the USD 3.2 billion they would have acquired from the Russian company wasn’t enough to pay off the USD 4.5 billion debt on the company’s books.
A larger seventy four per cent stake was offered to Rosneft but that thought was dropped because the Russian firm faces US sanctions and by a advantage of its majority stake Essar Oil too would have come on that checklist.
At this stage, Trafigura was roped in and supplied 24 per cent stake. Trafigura, which has close ties to Rosneft, was to finance its acquisition by taking mortgage from Russia’s VTB Capital, a part of state-managed bank VTB.
The deal consists of the Vadinar refinery as effectively as the Vadinar port and greater than 2,seven-hundred petrol pumps. A energy plant serving the refinery as well as company’s coal-bed methane? (CBM) blocks aren’t included within the deal.
As a part of the deal, Rosneft-Trafigura may even take over the debt of Essar Oil and the port and terminal firm.
Ruia said VTB Capital has performed a significant position in the transaction, which has been structured in such a manner that it doesn’t invite US sanctions on Essar Oil.
Final 12 months, US Treasury’s Workplace of International Property Management (OFAC) had issued a Crimea Sanctions Advisory, including Rosneft and its subsidiaries to its Sectoral Sanctions Identifications List in retaliation for the Russian’s invasion of eastern Ukraine.
Entities on this record are topic to economic and trade sanctions on grounds that they pose a danger to US nationwide security and are in violation of US international policy targets.
Rosneft had in July last year signed a non-binding settlement to purchase a forty nine per cent stake in Essar Oil. This was followed by December 2015 deal whereby Rosneft was to provide Vadinar refinery with 200,000 barrels of crude per day (10 million tons a 12 months) for 10 years.
Sources stated Trafigura may at a later stage switch its stake to Rosneft.
Trafigura handles a lot of the crude exported by Rosneft. This has propelled Trafigura to being the world’s second-biggest unbiased oil trader, handling more than four million barrels a day.
Russia is seeking to expand its vitality ties in Asia amid tensions with the West sparked by Moscow’s annexation of Crimea in 2014.
Rosneft, the world’s largest listed oil producer by output, is looking at south Asia for downstream investments as it sees the region as becoming a fast-growing marketplace for its oil.
India which is determined by imports for about eighty per cent of its wants is ready to taking over from China as the primary driver of global oil demand progress this yr. India is the world’s third-largest oil client, behind China and the US.
Rosneft is reportedly discussing investing USD thirteen billion in a new refinery mission in Indonesia with Pertamina, the country’s state-controlled oil and gas firm.
Russian oil producers have been relatively sheltered from the collapse in crude prices by the decline of the rouble, which has helped them to scale back costs. A progressive taxation system beneath which the Russian government has absorbed a lot of the decline in oil costs has also boosted the producers.
Russia has signed enormous deals to deliver oil and gasoline to China and allowed Chinese language corporations to buy stakes in giant power tasks.
Indian firms have additionally snapped up stakes in production assets in Siberian fields. ONGC, Oil India and Indian Oil are investing USD 5.5 billion to purchase stakes in Rosneft’s Vankor and Taas-Yuryakh fields.
Chinese language and Indian state corporations have expressed an curiosity in taking a stake in Rosneft, as the Russian state plans to sell 19.5 per cent of the company this yr. The state would retain management of the corporate, during which BP of UK already has a near 20 per cent stake.
Russia ranked twentieth among nations with a complete funding of just about USD 1.2 billion in India in the final 16 years. Mauritius gave nearly USD 96 billion, while Singapore and the UK have invested USD 46 billion and USD 23 billion each in India.
Oil sector attracted about USD 6.68 billion in overseas funding.
Commenting on the the Essar-Rosneft deal, ICICI Financial institution MD & CEO Chanda Kochhar stated: “This deal is the largest ever overseas acquisition in India. It proves the attractiveness of the Indian energy market to overseas traders as India is without doubt one of the fastest growing gas consuming economies on the planet./p>
She additional mentioned: “This deal is also a major step in the strategy of deleveraging the balance sheets of Indian corporates. ICICI Bank has been closely working with varied companies including the Essar Group to assist them deleverage their pressured steadiness sheets.