Essar completes sale of oil assets; deal bans Ruias from re-entering oil refining sector in India forever

The deal involves a non-compete clause in the agreement, as per which the Ruias will not be able to enter any part of the oil refining and retailing in the country, EOL's non-executive director said.

The logo of Essar group is seen at its headquarters in Mumbai. (Photo | Reuters)

MUMBAI: In a significant move, Russia’s Rosneft PJSC-led consortium concluded its $12.9-billion acquisition of Essar Oil Ltd, including the captive port, power and retail assets.

The Ruia family termed the transaction as India’s biggest deleveraging deal that helps it reduce debt by Rs 70,000 crore or 60 per cent of its total debt.

According to Prashant Ruia, director of Essar Group, Rs 4,000 crore will be paid to domestic lenders, while another $5 billion worth of Essar Oil’s debt will be taken over by Rosneft, the new owner, as domestic lenders led by State Bank of India, ICICI Bank, Axis Bank and IDIBI Bank chose to stay with the Russian company.

“The Essar Oil stake sale has halved ICICI Bank’s exposure to the Essar Group,” said Chanda Kochhar, CEO of ICICI Bank. Life Insurance Corporation, one of the key players blocking the deal, will get nearly Rs 800 crore.

“With the completion of our capex programme of over Rs 1.2 lakh crore, we now look forward to a period of growth in our wider portfolio of businesses,” Ruia said.

With this, Essar’s total FDI contribution touches $30 billion including the Vodafone deal in 2007 for $11.1 billion and the Aegis BPO transaction.

Essar Energy Holdings and Oil Bidco Mauritius held 98.26 per cent stake in Essar Oil’s 20-million tonne Vadinar refinery in Gujarat, a captive port (58 mt) and a power plant (1,010 Mw multi-fuel unit) and over 3,500 petrol pumps. The refinery and retail assets were valued at $10.9 billion, while the port and related infrastructure assets were valued $2 billion.

While Rosneft acquired 49 per cent stake, commodity trader Trafigura Group and Russian investment fund United Capital Partners will split another 49 per cent equity equally. The remaining 1.75 per cent will be held by minority shareholders who refused to tender their shares in the delisting of Essar Oil last February and will now be paid back as per Sebi’s buyback regulation.

The deal marks the complete exit of the Ruias from Essar Oil, which once contributed 25 per cent to topline and 75 per cent of bottomline. But they will retain presence in oil sector through its 9-mt Stanlow Refinery in Gujarat. The refinery was set up 22 years ago with a 3 million tonne (mt) annual refining capacity and was scaled up to 20 mt over a period of time, making it the second largest facility in the private sector. Essar’s asset base stands at $17 billion, $15 billion revenue and an Ebitda of $2 billion.