Rosneft leads purchase of Essar Oil

Investors led by Rosneft have agreed to buy oil refining and port assets from India’s troubled Essar Group in a deal worth $13bn, as Moscow seeks to boost its marginal presence in an increasingly crucial hydrocarbon market.

India is already the world’s third-largest consumer of crude oil and its demand will increase more than any other country’s over the next two decades, according to the International Energy Agency. But Russia has long lagged behind far behind Middle Eastern producers in this market: UN trade data show it accounted for 1 per cent of Indian crude imports last year.

In the deal announced on Saturday at a summit of Brics nations in the Indian state of Goa, Rosneft — Russia’s main state-owned oil company — will take a 49 per cent stake in Essar Oil, which owns India’s second-biggest private refinery in the western state of Gujarat, as well as a network of 2,700 filling stations. 

United Capital Partners, a Russian investment group, and the commodities trading company Trafigura will each take a stake of 24 per cent in the company. This will leave just 1 per cent of the stock with an Essar Group investment company, and 2 per cent in the hands of small shareholders who retained their shares when Essar Oil delisted last year.

The deal puts Essar Oil’s enterprise value at $10.9bn, which includes gross debt of about $4bn, according to a person close to Essar. The investors will pay a further $2bn for a port near the Gujarat refinery, which will be acquired from the Essar Ports affiliate and folded into Essar Oil.

The sale will provide a vital financial boost to Essar, controlled by the founding Ruia family, which has struggled to service its mounting debts after severe project delays at its power and steel units. While its network of offshore holding companies has obscured the extent of its liabilities, analysts at Credit Suisse late last year estimated the group’s overall gross debt at about Rs1tn ($15bn).

Rosneft’s acquisition of the stake was agreed in principle in July 2015, alongside an agreement to supply the refinery with 100m tonnes of crude over ten years. The delay in sealing the transaction sparked speculation that US sanctions against Russia were complicating the process.

The deal’s completion was announced on a day that saw the Russian and Indian leaders meet and publicly reaffirm the strength of a relationship that some observers consider to have drifted in recent years

While India has sought to reduce its military’s longstanding reliance on imports of Russian equipment, it announced on Saturday that it would buy a large-scale air defence system from Moscow, and collaborate on production of frigates and helicopters. The two states are also to set up a joint $1bn fund that will be used to strengthen their economic ties.

A joint statement, following talks between Indian Prime Minister Narendra Modi and Russian President Vladimir Putin, said that Mr Modi had “reiterated that Russia will remain India’s major defence and strategic partner, and the enduring partnership between them is an anchor of peace and stability in a changing world order”.

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