Ruias to sell 98% stake in Essar Oil to Rosneft-led group

Tanya Thomas Goa | Updated on January 16, 2018 Published on October 15, 2016

Ravi Ruia, Vice-Chairman, Essar Group, exchanging deal papers while Prime Minister Narendra Modi and Russian President Vladmir Putin look on.

Storage tanks at Essar Oil's Vadinar refinery in Gujarat. -- Reuters

Over a year after rumours of the billionaire Ruia brothers selling stake in the flagship Vadinar oil refinery started doing the rounds, Essar Oil announced today that it is selling 98 per cent of Essar Oil to Russia’s Rosneft Oil Company and a consortium of traders led by Trafigura and United Capital Partners.

The all-cash deal assigns an enterprise value (a total of equity and debt minus cash) of Rs 72,800 crore for Essar Oil's refining and fuel retail assets. An additional Rs 13,300 crore will be paid for the adjacent Vadinar port and related infrastructure. Essar Oil operates India's second largest refinery at Vadinar, Gujarat, with a capacity of 20 million tonnes per annum, a 1,010 MW captive power plant and a network of 2,700 operating fuel retail outlets.

According to the two definitive agreements that have been signed, Essar Energy Holdings and Oil Bico (Mauritius) - the controlling shareholders of Essar Oil Ltd - will sell 49 per cent stake to Petrol Complex Pte Ltd (a subsidiary of the Russian Rosneft Oil Company) and another 49 per cent to Kesani Enterprises Company Ltd, a consortium of Trafigura, the world’s largest commodity trader, and private equity group United Capital Partners. In this consortium, Essar will hold 2 per cent of stake.

The deal was announced in Goa today in the presence of Prime Minister Narendra Modi and Russian President Vladmir Putin, who are here for the ongoing BRICS summit. The deal is subject to regulatory approvals but is expected to close by the end of the current financial year.

The remaining 2 per cent of the company is held by minority shareholders. Essar Oil was a publicly listed company till last December, when it delisted from stock exchanges at a valuation of Rs 38,000 crore. Minority investors who did tender in their shares at the delisting price of Rs 262.80 last year may expect a certain upside from the stake sale, Prashant Ruia, Director, Essar, said at a press conference. The compensation is required under the delisting rules that SEBI had required from Essar Oil.

The equity inflow from the deal will help Essar Oil bring down its group-level debt of nearly Rs 88,000 crore down by slightly over half, although the company’s management declined to give details of the exact cash inflow from the deal or how this will be deployed to repay loans across other group companies.

“The deal is part of Essar’s cycle of building a great business, creating value and and then monetising it,” Ruia added. In 2007, the Essar Group and Hutchison Whampoa sold their telecom business to Vodafone in a $11.1 billion transaction, creating the country’s second largest telecom company.

After the deal, Ruia said the Essar fuel retail outlets, even under the new management, will continue to bear the Essar branding.

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Published on October 15, 2016
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