Along with the Netherlands-based Trafigura Group, Rosneft snaps up Indian oil major for enterprise value of $12.9 billion; Ruias reduce debt by Rs 70,000 crore
The long saga of a deal chased by the debt-laden Ruias for over two years is finally over.
At the end of it, the Ruias are able to cut the debt exposure of Essar Group by about $11 billion, Russian oil giant Rosneft gets access to one of the fast-growing energy markets in the world, Indian banks feel cushioned and the government takes credit for being able to attract a global major to India.
For the Ruias, it could have been a sad moment to hand over their crown jewel to the Russian firm and a consortium of investors. But sitting on a mountain of debt and having to battle a bankruptcy case against their ailing group company Essar Steel, it was no surprise that Prashant Ruia, director of Essar Capital, was looking happy while addressing the media on Monday morning. He had, after all, concluded a deal which pegged the enterprise value of Essar Oil at $12.9 billion.
"With this deal, we have completed our monetization and deleveraging programme. We have substantially deleveraged our portfolio companies' balance sheets, reducing debt by over $11 billion (Rs 70,000 crore). This includes the Rs 4,000 crore that will come to India to settle the debt that Essar Oil had to LIC other insurance companies and some banks," Ruia said.
Rosneft will take possession of 49.13% stake in Essar Oil. The Netherlands-based Trafigura Group, one of the world's biggest commodity traders, and Russian investment fund United Capital Partners (UCP) will split another 49.13% among them equally. The remaining 1.74% stake will continue to be held by retail shareholders.
The deal includes Essar Oil's 20-million tonne Vadinar refinery in Gujarat, a captive port (58 million tonne), a power plant (1,010 mw multi-fuel unit) and over 3,500 petrol pumps, which Rosneft plans to expand to over 6,000 outlets. It also involves a non-compete agreement and permission to use the Essar brand name for an unspecified period, for which a royalty will be paid to the Essar group.
Indian banks are relieved that their exposure to Essar Group has shrunk by around $5.4 billion. The debt will not evaporate but move to Rosneft, a financially healthy company.
The sale proceeds will not be used to settle the debt of group companies. Essar Steel is battling a bankruptcy case with a consortium of Indian lenders after it was shortlisted by the Reserve Bank of India to be tried under the newly formulated Insolvency and Bankruptcy Code, 2016.
It is still not clear how much of the transaction money from the Essar Oil sale will flow into India as the bulk of it will be used to settle the foreign debt of Essar group's holding company, Essar Global Fund Ltd (EGFL). This will also retire foreign currency loans of Rs 2,500 crore of ICICI Bank and Axis Bank. About Rs 4,000 crore from the deal is expected to flow into India to settle the debt of Life Insurance Corporation of India (LIC), other insurance companies and banks.
When asked how much of the sale proceeds will flow into India, Ruia refused to comment.
Following the closure of the deal, the new board of directors and the chief executive officer of the company was also announced. Tony Fountain, a UCP nominee, will be the chairman of Essar Oil while Lalit Kumar Gupta, former CEO of EOL, will remain a senior advisor. B Anand, former CFO of Trafigura, will be the new CEO of the newly constituted Essar Oil.
THE DEAL
- $5 billion — Essar Energy will pay to clear loans
- $5.4 billion — New owners to take over Essar Oil’s debt
- $600 million — Essar to repay to Indian lenders
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