Billions to India: why Rosneft partners has acquired Essar Oil

Oil refinery Essar Oil in the Western state of Gujarat, India

Plant for Rosneft

Rosneft, Dutch Trafigura, one of the largest sellers of its oil, and the Fund UCP Ilya Sherbovich (2012-2013 served on the Board of Directors of Rosneft) signed an agreement to purchase 98% of Essar Oil Ltd at Essar Energy Holdings and its affiliated companies, owned by brothers-billionaires Shashi and Ravi Ruia. This is stated in the message “Rosneft” and two other buyers — Trafigura and UCP.

The deal was made on Saturday, October 15, in the presence of the President of Russia Vladimir Putin and Indian Prime Minister Narendra modi in the framework of the BRICS summit in Goa.

Essar Oil owns the second-largest in India’s private oil refinery (oil refinery capacity of 20 million tonnes per year) oil storage “world-class” infrastructure to import and export crude oil, located near the town of Vadinar and a network of more than 2.7 thousand filling stations in India, listed in soobshenia Trafigura and UCP. Diversified Essar group has decided to monetize one of its key assets after Rosneft and other foreign companies “showed great interest” in buying stake in Essar Oil, said in a statement. Proceeds from the transaction will allow the group to reduce nearly 50% debt, which is about $13.2 billion

Rosneft acquires 49% Essar Oil, a consortium Trafigura, UCP and one of the structures Essar, which entered into a strategic partnership 49%.In the end, Trafigura and UCP will get in the company of approximately 24%, and Essar — about 1% of their messages. So structured the deal, the brothers Ruia decided to keep a small stake in the company, said RBC a source close to one of the parties to the transaction.

The overall “cost of acquisition” 100% Essar Oil (including debt) will be $12.9 billion, reports a press-service “Rosneft”. $10.9 billion in estimated Essar Oil refinery and network of filling stations and another $2 billion port in Vadinar and related infrastructure, said Essar. According to Reuters, the debt Essar Oil is $4.7 billion, that is, 100% of the partners had to pay $8.2 billion In Essar message indicated that the transaction will be fully cash.

Shares of Essar Oil were estimated at about $5.8 billion — how much the company was worth on the stock exchange prior to delisting, told reporters at a briefing Director of Essar Group Prashant Ruia. Thus, considering port Indian assets will cost $7.8 billion from this amount, Rosneft will pay about $3.8 billion for 49%, and Trafigura and UCP — $1.9 billion. the Russian state-owned companies only noted that the price of this package will be determined “on the basis of the actual values of net debt and net working capital at the closing of the transaction.” All permissions of regulators, including the harmonization of international antitrust authorities, is scheduled to poluchiti to the end of the year. VTB Chairman Andrey Kostin said that under the deal Rosneft will pay about $3.5 billion, reports Bloomberg. He VTB Essar will provide another $3.9 billion in debt restructuring, he added. “This is the largest investment in the history of India,” Kostin concluded (quoted by TASS).

The deal does not violate international sanctions, the report says, Trafigura. Rosneft and its CEO Igor Sechin was under sanctions after the annexation of Crimea to Russia in 2014. Essar head Prashant Ruia also expressed confidence that international sanctions against Russia on the transaction is not affected.

For “Rosneft” buying stakes in Indian companies — a “historic event,” Sechin said (his words are in the message): it overlooks one of the most promising and fastest growing markets in the world. According to the International energy Agency, India is the world leader in terms of growth of oil consumption and by the end of 2016 to become the third largest buyer, ahead of Japan. This transaction creates a “unique synergistic opportunities” for existing assets to Rosneft, and for planned projects of Rosneft and opens the prospects for increasing efficiency of deliveries to the markets of other countries in the Asia-Pacific region such as Indonesia, Vietnam, Philippines, Australia, said the head of the Russian company.

The main sources of synergy is the ability of processing heavy oil from Venezuela, the agreement on the supply to which “Rosneft” has signed with PDVSA in the summer of 2016, as well as cross-supply of petroleum products to Asian markets, thus strengthening economic efficiency of the Indian refinery, explained in a statement the company. Answering questions in a press-service “Rosneft” did not answer.

The representative of Trafigura, Victoria deeks told RBC that the purchase is made with borrowed Bank financing (secured stake in the refinery) and own funds, abandoning details. The representative of the UCP has not yet responded to a request to RBC.

This deal shows how major oil-producing countries to invest in refineries abroad, to ensure the demand for its products amid intense struggle for market share between the country-members of OPEC and do not go to the consortium of manufacturers, according to Bloomberg. Similarly, Saudi Aramco from Saudi Arabia buys stake in factories around the world — from Indonesia to the USA.

Billions from India

In the framework of the BRICS summit, Rosneft also signed an agreement “on podgotovke to the closing of the transaction” for the sale of ONGC extra 11% “Vankorneft” for approximately $930 million, according to the Russian company on Saturday. This deal already approved by Cabinet commisa on foreign investment in Russia and the Committee for economy of the government of India, it is planned to finish till the end of October.

ONGC bought the first 15% “Vankorneft” in may for $1.27 billion, and October 5, Rosneft lost 23.9% of its subsidiary to a consortium of Indian companies comprising Oil India limited, Indian Oil Corporation and Bharat Petroresources, for about $2.02 billion Thus, in a series of transactions in just six months, “Rosneft” has sold 49% “Vankorneft” for $4.22 billion, retaining control. Rosneft “in a short time” completes the implementation of the project on creation of a unique international energy hub on the basis of the Vankor cluster, said in a statement.

The facility develops the largest of the fields put into operation in Russia over the past 25 years: January 1, 2016, its oil reserves amounted to 265 million tons of oil and condensate, 88 billion cubic meters of gas. In 2015, the field produced 22 million tons of oil and 8.7 billion cubic meters of gas.

The same consortium in early October, Rosneft sold the stake in another project in East Siberia and 29.9% “TAAS-Yuryakh oil and gas”, developing the Srednebotuobinskoye oil and gas condensate field, for $1.12 billion

Besides, “Rosneft” and the extended consortium, consisting of five Indian state-owned companies (Oil India, Indian Oil Corporation, Bharat Petroresources, ONGC and Hindustan Petroleum Corporation) have announced their intention to expand cooperation in Russia: they are going to soon start negotiations on the possible acquisition of stakes in Suzunskoye, Tagulskoye, and lodochnoye fields, which also owns the Russian company. These three fields are treated as “single asset”, is spoken in the message.