Non-Compete Agreement With Rosneft Only For Three Years, Essar’s Prashant Ruia Says
The Ruias will clear Essar Oil’s $2.1 billion dues to Iran, said Prashant Ruia to BloombergQuint.
Essar Group has signed a three-year non-compete agreement with Russia’s Rosneft-led consortium for its oil and refinery business, Prashant Ruia, director of Essar Capital, told BloombergQuint. But there are no plans to get back into the refinery business just yet, he added.
The group may have sold more than 98 percent of Essar Oil Ltd.’s stake to the consortium, but its debt is still the responsibility of the Ruias, he said. Essar Oil owes Iran about 2 billion euros for crude oil purchases. The entire amount is parked in an escrow account, and subject to necessary approvals, including a nod from the United Nations, the amount can be paid to Iran.
Here are edited excerpts of the conversation.
How did you arrive at the Rs 75.48 per share price?
It is fairly simple. At the time when we did the delisting, we voluntarily offered that in case there is a monetisation straight after the delisting, the minority shareholders would get the same price as what the promoters would get in the Rosneft deal. Even though it’s nearly two years since that agreement, we are keeping our word.
Basically, the additional Rs 75 equates the price at which we are getting an exit for our shares. So effectively both the majority shareholders and minority shareholders are getting the same price from Rosneft, Trafigura and United Capital. That involves an additional payout of Rs 880 crore within the next two months. We are very happy to be able to do this for all the shareholders.
Bounty For Shareholders
You said the deal was $12.9 billion, $5 billion of which was debt. That leaves us with $7.9 billion equity. When divided by the shares outstanding at the time you were delisted, which is a little over 160 crore shares. It worked out to a Rs 92 differential or somewhere in that region. As opposed to the Rs 75 differential. What did we not calculate that you have? Why would there be a difference in this?
I’m not sure what your calculation is. But the net equity value what we are getting is this price which we have announced, multiplied by the number of shares.
Did we get the shares wrong? Because we looked at the outstanding number of shares during delisting.
I don’t have the numbers on the top of my head. This equates to Rs 50,000 crore market capitalisation, effectively for 100 percent of shares.
The net equity value of the deal is $7.9 billion?
In that range. The media release states that Rs 50,400 crore is the net equity value. What we have also announced is when Essar Oil went public in 1995, the market cap of the company was Rs 2,000 crore. We come from that to now where we are exiting at a market cap of Rs 50,000 crore.
But Rs 50,000 crore doesn’t correspond with $7.9 billion.
There is also a minority element. 1.6-1.7 percent minority, which you are not calculating. We can share that with you.
But the numbers here are not 100 percent out there?
Whatever is the share price, what we will get is what the minority shareholders will get. And I am very happy to announce that amount of Rs 75 above the delisting price. And that is the same price, we as majority shareholders will get. We can share the calculations with you after this interview, I don’t have it at the top of my head.
3-Year Non-Compete
Do you have a non-compete agreement with Rosneft and the consortium? Will you get back into the refinery business? I’m asking this because you do have a standalone refinery in U.K.
Two parts of the oil and refinery business continue with us – the coalbed methane block and Essar Oil standalone unit in U.K. We have a non-compete agreement which is for three years, which frankly at this point is not material because at this point there are no plans to go back.
Who Will Pay Iran Dues?
The Iran dues will be paid by Roseneft, or you?
No, by us, it’s our responsibility.
What is the amount of debt?
Around $2.1 billion.
Where will you pay this from?
It’s part of the sale process. What has been agreed upon is an enterprise value. It’s less debt, and less current assets minus current liabilities. That’s how an enterprise value is calculated.
So Roseneft is paying you $12.8 billion and that amount contains the $2.1 billion that you will have to discharge to Iran for the oil supply?
Yeah, but the company also has current assets. So, the company will receive its current assets, pay out its current liabilities and the net of that number is included in the $12.9 billion amount.
What is the quantum of current assets?
We are not sharing more information than we already have shared. Whatever is out in the public domain is enough data.
Every transaction in the world which has an enterprise value has current assets and current liabilities and debt.
You said Rs 4,000 crore will go towards paying Indian lenders. Is that correct?
From Essar Oil, yes.
