Rosneft, Trafigura Finalize $12.9 Billion Deal for Essar Oil

(Bloomberg) -- Rosneft PJSC and partners including Trafigura Group finalized their $12.9 billion purchase of India’s Essar Oil Ltd.

It took more than 10 months to complete the deal after it was announced last October and more than two years after Rosneft first confirmed it was in talks to buy India’s second-largest private oil refiner. The purchase gives Russia’s biggest oil producer and one of the world’s largest commodity traders access to a global demand center in Asia, while helping Essar Group reduce its debt by about $11 billion and shift focus to its struggling steel business.

Essar Group sold 49 percent of Essar Oil each to Rosneft and a consortium of Trafigura and United Capital Partners, the Indian conglomerate said in a statement. The closing of the acquisition enables Rosneft to enter one of the world’s fastest growing markets, the Russian company said in a separate statement.

Essar will sell its refinery at Vadinar on India’s west coast and its fuel-retailing business along with a port terminal and power plant that helps feed the refinery. The deal for the 400,000-barrel-a-day refinery will give Russia’s biggest oil producer an outlet in South Asia for its production as oil-rich countries vie for market share.

New Management

Essar Oil on Monday announced a new 12-member board and appointed Tony Fountain as its chairman. It named B. Anand as the new chief executive officer, replacing Lalit Kumar Gupta, who will stay on as an adviser to the management board.

“One of the great attractions for buying this is recognition that many opportunities exist,” Fountain told reporters. “We have asked the management team to bring to board an asset-development plan that we can review.”

The company will expand its fuel stations to 6,000 outlets from 3,500 now while the new management has yet to decide on a refinery-expansion plan, Fountain said, adding that the new owners will take over about $5 billion of Essar Oil’s existing debt. Under the deal, Essar Oil has a non-compete agreement with Essar Group, which cannot venture into oil refining and fuel retailing, Essar Oil Director Kris Zielicki said. 

Rosneft first confirmed it was buying a stake in the Essar refinery in July 2015. More suitors later entered the fray as Essar was said to be in talks with the national oil companies of Saudi Arabia and Iran to sell a stake in its refinery business. It took several months to secure approvals for the deal as it faced resistance from lenders.

Essar Oil owes Iran about 2 billion euros for crude oil purchases, which will be paid by the company under its new owners, the Indian group said at a separate press conference.

• Breakdown of Essar Group’s reduction of debt:
  • To repay $5 billion to Essar Energy to clear loans
  • New owners to take over Essar Oil’s $5.4 billion debt
  • Essar to repay about $600 million to some Indian lenders