Rosneft and a consortium of Trafigura and United Capital Partners have signed agreements to acquire 98% in Essar Oil Limited (EOL).
Essar Energy Holdings Limited and Oil Bidco (Mauritius) Limited, the controlling shareholders of EOL have entered into separate definitive agreements for the sale of 98% of EOL. The first sale and purchase agreement envisages the sale of 49% to Petrol Complex Pte. Ltd (a subsidiary of PJSC Rosneft Oil Company); the second envisages the sale of the remaining 49% to Kesani Enterprises Company Limited (owned by a consortium led by Trafigura) at an enterprise valuation of INR728 billion (US$10.9 billion). An additional INR133 billion (US$2 billion) will be paid for the acquisition of Vadinar Port, which has world-class storage and import/export facilities.
The all-cash deal encompasses EOL’s 20 million tonne refinery in Gujarat, India, and its pan-India retail outlets. The closing of the transaction is conditional upon receiving requisite regulatory approvals and other customary conditions. The parties expect to obtain the relevant approvals before the end of this year.
Investing in EOL, which operates one of the world’s most complex refineries and runs India’s largest private sector retail network, gives the new stakeholders a strong foothold in the Indian market that will witness robust demand growth for petroleum products in the long term. The growth for refined petroleum products in the Indian market for the next five years is expected to be in the 5%-7% range.
EOL’s value has also been strengthened by the integrated nature of its business and the strategic positioning of its assets. Its 20 million tonne oil refinery in Vadinar, which accounts for 9% of India’s total refining output, is supported by a 1,010 MW captive power plant, and complemented by a network of around 2,700 operating retail outlets. The additional INR133 million that the new stakeholders have agreed to pay is for the 58 million tonne deep draft port in Vadinar that helps in importing crude and exporting finished products.
Rosneft Oil Company is the world’s largest petroleum company with revenues in excess of US$80 billion. The company’s main business activities include exploration & production, refining and product marketing in Russia and across countries in North America, Latin America, Europe, Asia and the Middle East.
Trafigura Group is an independent commodity trading and logistics group of companies with revenues of approximately US$100 billion.
United Capital Partners (UCP) is a large independent Russian private investment group with investments of over US$3.5 billion in various industrial sectors.
The transaction is the single largest tranche of foreign direct investment in India, and re-establishes the image of India as an attractive destination for foreign investments. Earlier in 2007, Essar Group, together with Hutchison Whampoa, brought Vodafone into India through an US$11.1-billion transaction. With the current transaction, this is the second instance that Essar has brought in world leaders in the sector to participate in the India growth story.
Essar Group Chairman, Mr Shashi Ruia, said:
“It is a historic day for Essar. The transaction demonstrates our unique ability to build world-class assets and create immense value in our businesses. The monetisation of our stake in Essar Oil will help drive the next level of growth for our other businesses.”
Mr Igor Sechin, CEO, Rosneft, said:
“This is a significant milestone for the Company. Rosneft is entering one of the most promising and fast-growing world markets. At the same time, this project provides unique opportunities for synergies with the existing assets of the Company and is consistent with Rosneft's enhanced presence in the fast growing markets of other APR countries, such as Indonesia, Vietnam and The Philippines.”
Mr Jeremy Weir, Chief Executive Officer of Trafigura, said:
“This is an important and exciting investment. Essar Oil occupies a strategic position in the global oil market and owns world-class refining and infrastructure assets that will create multiple synergies with our trading business.”