New Owners To Scale Up Essar Oil’s Fuel Retail Business 

By acquiring India’s second-largest private oil refiner Essar Oil Ltd., Russian oil major Rosneft and a UCP-Trafigura consortium have entered the Asia’s third largest economy amid growing fuel demand.

And the new management will chalk out a fresh asset expansion plan, Tony Fountain, newly appointed chairman and non-executive director of Essar Oil, said in an interview to BloombergQuint. While it is yet to take a call on the expansion of the refinery, the company will expand fuel retail operations. It plans to increase the number of fuel outlets from 3,500 to 6,000 over the next couple of years, Fountain said.

Essar Oil has a 400,000-barrel-a-day refinery in Vadinar, which has a fully integrated captive power plant, port and terminal facilities. It mostly sells oil in the local market. Last year, Essar Oil had entered into a 10-year crude supply agreement with Rosneft. The new management, however, said on Monday that they will source the cheapest crude available.

Rosneft and a consortium of United Capital Partners-Trafigura together acquired a 98 percent stake in Essar Oil for an enterprise value of $12.9-billion. The Ruia family will have a 2 percent stake in the consortium, giving it a nearly 1 percent economic interest in Essar Oil.

Also Read: Essar Oil Sale Will Reduce Essar Group’s Debt By Rs 70,000 Crore

The new owners didn’t disclose the equity value. “We paid a total value of $12.9 billion dollars including debt. It is for the seller to disclose the per share value,” said Fountain.

‘No Withholding Tax’

The deal will not have any tax liability as it involves a transfer of ownership between Mauritius-based entities, said Fountain. “We have taken legal advice and the structure of the deal does not require to withhold any tax.”

LIC Member On New Board

While B Anand has been named the new chief executive officer, his predecessor Lalit Gupta will remain in a senior advisory role. The board will have a nominee of Life Insurance Corporation of India who will step down after full repayment to LIC, said Fountain.

Debt Recast

The deal includes a debt of $5 billion comprising $4 billion of term loans and $1 billion of working capital, Fountain said. “This debt exposure will get transferred to new buyers. We are in discussions with the domestic lenders on the debt front. We are yet to take any view,” said Fountain.

Not all the cash paid by the Russian buyers will come to India. Only $3.5 billion of the total cash payment of $7.9 billion will come to the country, Prashant Ruia, the CEO of Essar Group, said in a press conference. Essar Group would be paying Rs 4,000 crore of debt to LIC, other insurance companies, and some banks, he said.