Essar Oil-Rosneft deal: A win-win package

Nearly a year after it was announced, the $12.9-billion deal to sell the Ruias-controlled Essar Oil to a consortium led by Russian oil major Rosneft has been finally closed.

The deal includes sale of Essar Oil’s 20 mtpa Vadinar refinery, a captive power plant, captive port and over 3,500 petrol pumps.

Rosneft gets about 49 per cent in Essar Oil, another 49 per cent goes to an investment consortium comprising global commodity trading major Trafigura and Russian investment fund United Capital Partners. The balance about 2 per cent will be held by the Ruias.

The deal closure benefits many, including the seller, its lenders and the buyer.

One, the debt-ridden Essar Group, facing a lot of heat from lenders, gets the much-needed money to help it pare a good portion of its borrowing.

The group plans to use the proceeds to repay about ₹70,000 crore, nearly 60 per cent of its total debt. About ₹4,000 crore or so out of this will go to LIC and a few other domestic lenders.

The deal announced last October had been delayed due to some domestic lenders, including LIC, demanding payment from the Essar Group.

The exposure of many lenders to the Essar Group will also reduce significantly. Around $5 billion of Essar Oil’s debt will be taken over by Rosneft and domestic lenders led by SBI, ICICI Bank, Axis Bank and IDBI Bank have elected to stay with the new owners.

Assured crude market

Next, the sanctions-hit Russia gets access to India, among the fastest growing oil markets. The Russian government has the majority stake in Rosneft. The deal is not with Rosneft alone, but with an investment consortium – this skirts the sanctions as the majority stake hasn’t gone to Rosneft alone.

Rosneft gets an assured market for its crude and increases its refining heft. It will also get access to the high-potential fuel retailing market in the country.

The company has indicated plans to double the throughput of the Vadinar refinery and create a petrochemical facility in the long-term and increase the retail footprint from 3,500 stations to 5,500 in the medium term.

Not just Rosneft, even global hydrocarbon major BP benefits from this deal since it has about 20 per cent stake in Rosneft.

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