Essar Group has struck a deal to sell 49 per cent stake in its public-listed oil & gas company Essar Oil Ltd, to Russian oil giant Rosneft. The financial terms of the deal was not announced but the present value of this stake is around $2 billion. Given the strategic play for Rosneft in this transaction the final deal value could be around $3-3.5 billion.
The deal also comes strapped with a contract where Rosneft has committed to supply 100 million tones of crude oil to Essar over a period of 10 years.
Essar Oil owns the second largest single location refinery in the country at Vadinar in Gujarat. Its current capacity is 20 million tonnes per annum and both companies aim to hike this to 45 million tonnes per year by 2020.
Essar Oil also has a fuel retail chain of 1,600 stations located in India and the two partners plan to increase this to 5,000 within the next two years.
It also has five coal-bed methane (CBM), holding up to 10 trillion cubic feet of gas resource. However, this is not part of the deal.
Through this acquisition, Rosneft will obtain a share in one of the biggest refineries in India and the Asia-Pacific region. This will also increase the earning capacity of Rosneft operations in the region.
Ideally this transaction should trigger an open offer as Essar Oil is a listed firm but promoter Ruia family owns over 90 per cent stake in the company including their holding through GDRs. This allows them to delist the firm. Last year the company's board had approved a plan for voluntary delisting initiated by its promoters.
“The delisting is in process and this deal may happen before or after this divestment. But nothing is finalised yet,” Essar's spokesperson told VCCircle.
“The reached agreements are of a strategic nature. The performance of the terms of the signed documents will have a substantial impact on the scale of economical cooperation between Russia and India. The goods turnover between two countries will grow more than 50 per cent," said Igor Sechin, chairman of Rosneft.
Founded in 1993, Russian firm Rosneft is engaged in production and distribution of petroleum products like hydrocarbon exploration and production, handling upstream offshore projects, hydrocarbon refining, crude oil, gas production.
The state-owned company run by a close ally of Russian President Vladimir Putin, partly owes its assets to a questionable auction involving Yukos, an independent oil & gas firm that was at one point the largest in the country. BP also owns a minority stake in the firm.
Interestingly, Ruias of Essar have sealed this deal even as Yukos shareholders have been locked in a legal battle to get their dues. Though these claims are disputed by the Russian government, many expect that one of the prime targets for any rewards to Yukos shareholders would be overseas assets of Rosneft.
Essar Oil scrip crashed and the shares were quoting at Rs 179.4 each, down 4.8 per cent on BSE, in a weak Mumbai market on Thursday at 2.35 PM.