Ruias Sell Essar Oil to Russian Giant Rosneft in Biggest FDI Deal Saturday Oct 15,2016

In the largest inflow of foreign direct investment, Russia's state-controlled oil giant Rosneft and its partners on Saturday Oct 15,2016 took over India's second biggest private oil firm Essar Oil in an all-cash deal valued at about $13 billion.

Essar Oil is selling 98 %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 % stake to Petrol Complex Pte Ltd (a subsidiary of the Russian Rosneft Oil Company) and another 49 % 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 % of stake.

Rosneft bought a 49 % 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 % equity equally.

The remaining 2 % will be held by minority shareholders after delisting of Essar Oil.

The deal has an enterprise value of close to $12.9 billion — $10.9 billion being for a 20 million tons a year refinery in Gujarat and over 2,700 petrol pumps and another $2 billion for Vadinar port in Gujarat.

The deal factors in Essar Oil's debt of about $4.5 billion and about $2 billion debt with the port company.

Also, the near $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 %," 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 $13 billion) debt by half and ward off creditor pressure.

The 49% stake Trafigura and UCP are picking will be split between the two in 49:49 ratio while Essar Group will hold the remaining 2%

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.

Ruia said the equity value of the deal is "on or about Essar Oil's delisting price of $5.8 billion".
Of the $12.9 billion value, $6.5 billion is for the debt with Essar Oil and port company. Another $0.5 billion is for working capital, leaving $5.9 of equity value which is equal to the delisting price of Essar Oil