Largest FDI deal: Rosneft, partners buy Essar Oil for $13 billion

In the largest inflow of foreign direct investment, Russia’s state-controlled oil giant Rosneft and its partners on Saturday took over India’s second biggest private oil firm Essar Oil in an all-cash deal valued at about USD 13 billion.

Rosneft bought a 49 per cent stake in Essar Oil’s refinery, port and petrol pumps, while Netherlands-based Trafigura Group Pte, one of the world’s biggest commodity trading companies, and Russian investment fund United Capital Partners split another 49 per cent equity equally.

The remaining 2 per cent will be held by minority shareholders after delisting of Essar Oil. The deal has an enterprise value of close to USD 12.9 billion USD 10.9 billion being for a 20 million tons a year refinery in Gujarat and over 2,700 petrol pumps and another USD 2 billion for Vadinar port in Gujarat. The deal factors in Essar Oil’s debt of about USD 4.5 billion and about USD 2 billion debt with the port company.

Also, the near USD 3 billion dues to Iran for past oil purchases will continue to be on Essar Oil books. Trafigura, which has been funded by Russian bank, may sell its stake to Rosneft at a later date.

“We would be utilising significant portion of the deal proceeds in debt reduction. Group debt will reduce by about 50 per cent,” said Prashant Ruia, Director, Essar Group.

Essar Group, one of India’s largest and most indebted conglomerates, would trim its about Rs 88,000 crore (over USD 13 billion) debt by half and ward off creditor pressure.

The 49 per cent stake Trafigura and UCP are picking will be split between the two in 49:49 ratio while Essar Group will hold the remaining 2 per cent. Ruia said the equity value of the deal is “on or about Essar Oil’s delisting price of USD 5.8 billion”.

Of the USD 12.9 billion value, USD 6.5 billion is for the debt with Essar Oil and port company. Another USD 0.5 billion is for working capital, leaving USD 5.9 of equity value which is equal to the delisting price of Essar Oil.

Ruia said as per SEBI order the shareholders of Essar Oil will be paid if the final equity value of the deal with Rosneft is higher than the delisting price. “We will get to know of that when the deal closes in first quarter of 2017,” he said.