In India’s largest FDI deal, Rosneft and International Investment Consortium To Acquire 98% in Ruia’s Essar Oil under a $12.9 bn deal

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 $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.

In India’s largest FDI deal, Rosneft and International Investment Consortium To Acquire 98% in Ruia’s Essar Oil under a $12.9 bn deal

Anupama Airy

In the single largest tranche of foreign direct investment in India, a $12.9 billion deal (Rs 86,100 crore) was inked on October 12 for sale of 98% in Essar Oil to Rosneft and investment consortium led by Trafigura.

essar-oil-pie-chart
Essar Oil Pie Chart

The transaction, that was announced in the presence Prime Minister, Narendra Modi and Vladimir Putin, President of the Russian Federation, at the BRICS Summit in Goa (India), includes Rs 72,800 crore ($10.9 bn) for Essar Oil’s refining and retail assets and Rs 13,300 crore ($2 bn) for Vadinar port and related infrastructure.

The Essar-Rosneft Transaction

·         Largest single tranche of inbound foreign direct investment
·         Transaction pegs Essar Oil’s enterprise value at Rs 72,800 crore ($10.9 billion) plus an additional Rs 13,300 crore ($2 billion) to be paid for Vadinar Port
·         Essar Global Fund decided to monetise Essar Oil, one of its key assets, after Rosneft and many other overseas firms evinced a keen interest in picking up a stake in the company
·         Rosneft, the Russian government owned integrated oil company, has picked up a 49% stake in Essar Oil Limited
·         Consortium of Trafigura and UCP pick up another 49% stake
·         All-cash deal expected to close in Q1 2017, subject to all necessary approvals
·         Essar plans to utilise proceeds from the stake sale to deleverage the Group and pave the way for strategic consolidation and growth in other businesses
·         There is no non-compete fee under the transaction with Rosneft
·         Deal in line with government’s vision to attract high ticket foreign investments into India
·         Transaction includes 20 MTPA refinery at Vadinar (Gujarat) and all supporting infrastructure
·         Deal demonstrates the ability of Indian businesses to attract overseas investment and indicates foreign players’ belief in the India growth story
·         Transaction also gives Rosneft and the UCP-Trafigura consortium access to Essar Oil’s pan-India network of over 2,700 fuel retail outlets
·         Deal will help Essar deleverage almost 50% of its Rs 88,000 crore debt and substantially reduce interest costs

Essar Group Chairman, Shashi Ruia said it was 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,” he added.

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 $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.

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“We have once again reinforced our unique expertise in project incubation, execution, value creation and monetisation. We have established world-class assets that have attracted the attention of leading global companies and investors. The deals we have done have led to an FDI infusion of more than $30 billion into India, said Prashant Ruia, Director, Essar.

Essar Oil operates India’s second largest refinery at Vadinar in Gujarat alongwith one of the largest private sector oil retail network comprising of 2700 petrol pumps across India. Essar’s Vadinar Refinery contributes 9% of India’s refining output.

Rosneft Oil Company is the world’s largest petroleum company with revenues in excess of $80 billion. The Trafigura Group is one of the world’s leading independent commodity trading and logistics group of companies with revenues of approximately $100 billion. United Capital Partners (UCP) is a large independent Russian private investment group with investments of over $3.5 billion in various industrial sectors.

Essar Energy Holdings Limited and Oil Bidco (Mauritius) Limited—companies incorporated and managed under the laws of Mauritius—the controlling shareholders of Essar Oil Limited (EOL) 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 and United Capital Partners) at an enterprise valuation of Rs 72,800 crore ($10.9 bn) (the “Transaction”).

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An additional Rs 13,300 crore ($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.

About Essar Oil

  • Essar Oil was set up using an equity capital of about Rs 9,000 crore in the 1990s. The transaction values the Company at over 8 times that cost. This is an indication of the phenomenal value that has been created through strategic investments
  • Essar Oil’s 20 MTPA refinery at Vadinar is a world-class refinery across several aspects, like performance, safety compliance, engineering and plant complexity. In a 2014 benchmark study by Solomon, Essar Oil was in the first quartile for 15 out of 26 performance indicators
  • Vadinar Refinery can handle all kinds of crude, including the toughest crudes
  • It produces and exports petroleum products meeting Euro IV and Euro V standards
  • Vadinar refinery production constitutes 9% of India’s refining output
  • Essar Oil currently has more than 2,700 retail outlets—the largest in the private sector—and is setting up an additional 2,000 outlets, which are in various stages of implementation
  • Essar Oil Limited is a privately held company after a complete delisting from the bourses in 2015. Only 2% of the equity remains with public shareholders who had not participated in the delisting
  • Refinery was commissioned in 2008
  • Integrated infrastructure of power plants, port and retail assets provides full flexibility to the refinery
  • Refinery has consistently been performing at above 100% capacity utilisation
  • Within four years of commissioning, refinery capacity increased from 10.5 MTPA to 20 MTPA, while complexity doubled from 6.1 to 11.8
  • Refinery’s Gross recovery Margins (GRM) have been consistently higher than its peers
  • Essar Oil has the best safety record in the industry, with more than 8 years without LTI (Lost Time Injury)
  • Essar Oil has the requisite land and has obtained approvals for all possible expansion activities, including doubling of refinery capacity and the setting up of a petrochemical complex
  • Essar Oil’s Vadinar complex was built around a natural deep-draft port, with a liquid cargo terminal. Facilities on site include two jetties for handling liquid petroleum products, tanks for storage of crude oil and finished petroleum goods, and rail and road gantries for dispatch of petroleum products. The Vadinar port has been the best performing port under the Kandla Port Trust for two consecutive years, and has just completed 10 years of operations
  • Essar Oil has registered consistent Y-on-Y growth in retail sales over the last few quarters
  • Essar Oil Vadinar refinery has produced higher proportion of middle & light distillates Y-on-Y, ensuring better margins
  • One third of the 3,000-acre Vadinar complex is reserved for a green belt that has 4 lakh trees
  • Essar Oil’s Vadinar refinery was voted among the top 20 most energy efficient units in India by CCI. The Company was ranked among India’s Carbon Disclosure Leaders for 2015 by CDP
  • Essar Oil has a retail presence in 28 states & UTs; its products marketed through 58 supply locations
  • Not just petrol & diesel, Essar Oil also manufactures LDO, Sulphur, FO, Bitumen & PetCoke.

 

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