The acquisition is the biggest foreign acquisition ever in India and Russia’s largest outbound deal.
Billionaire brothers Shashi and Ravi Ruia have agreed to sell 98 per cent of Essar Oil and a port terminal at Vadinar to a consortium led by Russian oil major Rosneft for almost $13 billion.
Oil trading firm Trafigura and private investment group United Capital Partners are the other partners in the group.
Essar Group Chairman Shashi Ruia described the deal as a ‘historic day’ for Essar.
“The monetisation of our stake in Essar Oil will help drive the next level of growth for our other businesses,” said Mr. Ruia.
The decision to sell ‘family silver’ was taken to pare the group’s debt of Rs.90,000 crore by half.
Russia is keen to deepen its Soviet-era economic ties with India at a time when its own economy is stagnant, hit by Western sanctions. The Russian company will be the third international player after Royal Dutch and Shell and BP to enter the Indian fuel retailing market.
Essar Group agreed to sell 49 per cent of Essar Oil Ltd. to Rosneft, and the rest in equal parts to the other partners, for an enterprise value of Rs.72,800 crore ($10.9 billion), according to a statement from Essar.
The all-cash deal includes India’s second-largest refinery at Vadinar with a capacity of 20 million tonnes, and another $2 billion will be paid for a port terminal that helps feed the refinery.
India is driving global oil demand as its economy expands and a rising middle class buys motor vehicles. The International Energy Agency expects India to account for a quarter of global energy use by 2040.
Commenting on the deal, Prashant Ruia, Director, Essar, said: “We have established world-class assets that have attracted the attention of leading global companies and investors. The deals we have done have led to an FDI infusion of more than $30 billion into India.”
The business transaction was announced in the presence of Indian Prime Minister Narendra Modi and Russian President Vladimir Putin, at the BRICS Summit in Goa.
Igor Sechin, CEO, Rosneft believes that this deal is a significant milestone for the company. “Rosneft is entering one of the most promising and fast-growing world markets.”
The deal closure is conditional upon receiving requisite regulatory approvals and other customary conditions and the parties expect to obtain the relevant approvals before the end of this year, according to the statement.
Essar Oil occupies a strategic position in the global oil market and owns world-class refining and infrastructure assets that will create multiple synergies with its trading business, Trafigura Chief Executive Officer Jeremy Weir said.
Rosneft and Essar had signed a non-binding pact in July 2015 and Rosneft had also agreed to supply Essar Oil about 200,000 barrels of crude oil per day over 10 years.
Mr. Ilya Sherbovich, Managing Partner of UCP, said: “This is a top-tier asset operating in the promising Indian market, one of the largest and rapidly developing economies in the world.”
When asked whether sanctions against Russia may pose a potential threat to the deal, Prashant Ruia said: “The deal has been structured in such a way that it will not sanctions will not come in between. Even ONGC and other Indian firms signed agreements with Rosneft about $6 billion to buy a stake in Russian oil fields.”
Essar Oil delisted on December 30, 2015, with a market capitalisation of Rs.38,000 crore, and within 10 months after the delisting, the promoters have struck a deal valuing the business more than double at Rs.86,000 crore.
“This deal is the largest ever foreign acquisition in India,” said Chanda Kochhar, MD & CEO, ICICI Bank. “It proves the attractiveness of the Indian energy market to foreign investors as India is one of the fastest growing fuel consuming economies in the world.“This deal is also a significant step in the process of deleveraging the balance sheets of Indian corporates,” Ms. Kochhar said. .