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Reuters
MUMBAI
Russian oil major Rosneft, oil trader Trafigura and Russian fund UCP closed their $12.9 billion purchase of Indian refiner Essar Oil on Monday, giving the companies a foothold in a country that is among the world's fastest growing oil users.
The purchase is the biggest foreign acquisition ever in India and Russia's largest outbound deal. It helps Russia deepen economic ties with India that stretch back to the Soviet era.
Rosneft, Trafigura and UCP purchased a 98.26 percent stake in Essar Oil in a deal first announced in October. The rest of Essar will be held by retail investors.
"(Rosneft) has entered the high-potential and fast-growing Asia Pacific market," Rosneft's Chief Executive Officer Igor Sechin said in a statement. The deal will enable Rosneft to improve the efficiency of fuel supplies to other nations in Asia, he added.
India's oil demand is expected to rise by an average 5.9 percent through 2020, among the fastest in the world, according to a report last month by Goldman Sachs.
To capitalise on that growth, Rosneft and its partners acquire Essar's oil refinery in Vadinar that can process 400,000 barrels a day of crude. The refinery is located in the western Indian state of Gujarat and the deal includes a port, a power plants and 3,500 fuel stations.
Tony Fountain, chairman of the new Essar Oil entity, said his firm is taking over $5 billion in debt and will also settle over 2 billion euros owed to Iran for past oil purchases.
He said the company will expand its fuel station fleet to 6,000. Rosneft also plans to double the Vadinar refining capacity and build a petrochemical facilities.
For Essar Group, the deal helps it cut its debt by about $11 billion, Prashant Ruia, director, Essar Capital, told a news conference.
Trafigura and Rosneft are the latest international companies after Royal Dutch Shell and BP to enter the Indian fuel retailing market.
The Russian major's stake in Venezuelan upstream assets and oil purchase contracts with state-owned PDVSA will help in improving the economics of the Indian refinery, Rosneft said on Monday.
Reuters last year reported that Rosneft planned to supply Venezuelan oil to the Vadinar refinery.
"Rosneft can swap its Venezuelan oil with sources near to India to improve the refinery's profitability. This also indicates that Rosneft is expanding its global footprint despite US sanctions," said Bansal, referring to restrictions placed on Rosneft and some other Russian entities following Moscow's 2014 annexation of Crimea from Ukraine.
Rosneft recently signed a deal to explore and develop five fields in Iraq's Kurdistan as part of its global expansion, and also wants to open a trading arm in Singapore.
Tony Fountain, the chairman of Essar Oil under its new owners, said the company would increase its number of fuel stations to 6,000. Rosneft also plans to double Vadinar's refining capacity and build petrochemical facilities.
Trafigura and Rosneft are the latest international companies after Royal Dutch Shell and BP to enter the Indian fuel retailing market.
The deal also reduces some of the strain on Essar Group, which is controlled by the billionaire Ruia brothers. The group, with a presence in oil and gas, steel, ports and power, has been under pressure to reduce its debt.
Essar Capital director Prashant Ruia told a news conference the transaction would cut Essar Group's debt by about $11 billion. Of that, $6 billion will be transferred to the new entity controlled by Rosneft, while $5 billion will be paid off. Essar Oil's new owners will repay $600 million of the debt it is taking on to Indian lenders, and will also settle over 2 billion euros ($2.4 billion) owed to Iran for past oil purchases.
"The deal augurs well for more such cross border transactions where foreign capital can flow into potentially stressed assets of India, which will eventually help the banking sector," said Pramod Kumar, Managing Director & Co-Head of Banking at Barclays.
Chanda Kochhar, managing director and chief executive of India's ICICI Bank, said the deal would reduce ICICI Bank's exposure to the Essar Group by about 50 percent, without elaborating.
