Essar Oil closes sell-off to Russia's Rosneft, names new CEO

Andrew Cummings
August 21, 2017

The Ruias-run Essar Oil today announced the completion of sale of its India assets to the Russian government controlled Rosneft-led consortium for $12.9 billion. This will bring down the group's debt by over 60 per cent.

According to an Essar Oil statement, the transaction, which was initiated in 2016 on the sidelines of the BRICS leaders summit in Goa, represents the largest foreign direct investment (FDI) into India till date.

"We are confident that together with all the new shareholders - recognised leaders in their industries, we will oversee the growth potential of Essar Oil to increase the long-term value of the company". Rosneft has acquired 49 per cent stake in Essar while two investors European trader Trafigura and a Russian fund UCP now hold 49 per cent equally.

The deal, which was originally scheduled to be completed by March this year, faced delays with some of Essar's lenders, like the Life Insurance Corp. of India and others, demanding that their dues be cleared before approving the transaction. The deal for the 400,000 bopd refinery will give Russia's biggest oil producer an outlet in South Asia for its production as oil-rich countries vie for market share.

"We have substantially deleveraged our portfolio companies' balance sheets, reducing debt by over $11 billion, or Rs 70,000 crore", Essar Capital Director Prashant Ruia said.

Essar Group founder Shashi Ruia said this landmark transaction ushers in a new phase of growth across the group portfolio that hold great promise in development story. "This is the single largest deleveraging ever undertaken in Indian corporate history", Essar Group director Prashant Ruia told a news conference.

Essar Oil was 98.26 per cent held by Essar Energy Holdings and Oil Bidco Mauritius. "Our stake in Essar Oil also complements Trafigura's growing presence in India at a time when the country's economic outlook is positive".

Commenting on the closing of the transaction, Rosneft's Chief Executive Officer Igor Sechin stated, "Together with our partners we intend to support the company to significantly improve its financial performance and, in the medium term, adopt an asset development strategy".

The company earlier said that the money generated through the deal will be primarily used to settle Essar Group's debt, which now stood at around Rs 1.17 crore after the first quarter of financial year 2018.

"While around United States dollars 5 billion worth of Essar Oil's debt will be taken over by Rosneft the new owner as domestic lenders led by SBI, ICICI Bank, Asix Bank and IDIBI Bank have elected to stay with the Russian company", he said. The refinery was set up 22 years ago with a 3 million tonne annual refining capacity and was scaled up to 20 MT over a period, making it the second largest facility in the private sector.

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