Lenders clear Rosneft-Essar Oil deal

Ksenia Kondratieva Mumbai | Updated on January 12, 2018

₹86,000 crore to come in by July will be used in part to settle debt

The Joint Lenders Forum, led by State Bank of India (SBI) and ICICI Bank and comprising 23 banks in total, on Friday approved and authorised the release of Essar Oil shares to facilitate closure of the deal with Russia’s Rosneft-led consortium, sources said.

The amount of ₹86,000 crore is expected to come in by July.

The transaction includes Essar Oil’s 20 million tonnes refinery at Vadinar in Gujarat, and its pan-India network of over 3,500 retail outlets as well as 1,010 MW Vadinar captive power plant, Vadinar deep draft port and related infrastructure. The operating company debt against these assets is around $5 billion (₹32,253 crore).

“The said debt will no longer be regarded as Essar Group exposure since the company owing such debt gets transferred to the new shareholders Rosneft and the consortium of Trafigura and UCP,” Essar Group’s spokesperson told BusinessLine.

According to him, the proceeds of the transaction will largely be utilised to deleverage around half of the Group’s ₹88,000 crore debt and to substantially reduce interest costs.

The long-awaited deal closure comes a day after another Joint Lenders Forum decided to begin insolvency proceedings against the three large steel companies, including Essar Steel that owns lenders ₹37,284 crore.

To India through Mauritius

Essar Oil’s refinery currently accounts for around 9 per cent of India’s total refining output. According to Essar’s spokesperson, since October 2016, when the deal with Rosneft and partners was signed, Essar has invested more than ₹700 crore in the expansion program that helped increase the refinery’s output by almost 10 per cent to 20.95 million tonnes in FY17, compared to 19.10 mt in the previous fiscal and expand the retail network by 67 per cent by end of Q4 FY 2017.

The deal is also considered the largest Foreign Direct Investment (FDI) in India, although technically the receiving parts are registered in Mauritius. According to the sale and purchase agreement signed by parties in October 2016, the seller is represented by Essar Energy Holdings Ltd and Oil Bidco (Mauritius) — companies incorporated and managed under the laws of Mauritius.

Rosneft, Russia’s largest oil & gas company, will acquire 49 per cent of Essar Oil through its subsidiary Petrol Complex Pte. Ltd, while another 49 per cent will be acquired by Kesani Enterprises Company Ltd (JVCo), an SPV created by commodity trading company Trafigura, Moscow-based private investment group UCP and Essar Africa Power Holdings Ltd (EAPL) owned by Rewant Ruia, the son of Essar Group’s vice-chairman Ravi Ruia. Ruias will indirectly own 2 per cent shareholding in this SPV.

Published on June 23, 2017

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