The Ruias have struck a complex royalty deal with the Russian government-owned company Rosneft and other investors that would acquire Essar Oil. The Ruias, as per the arrangement, would receive royalty as the new owners of Essar Oil would continue to use the ‘Essar’ brand.
The quantum and terms of payment are linked to a string of factors, including the operating performance of the various divisions of the company, a person familiar with the development told ET. The $12.9 billion deal, which includes loan liability of Essar Oil, is expected to be announced soon. The royalty amount is over and above the deal consideration.
Out of the total deal proceeds, about $5 billion would be used to repay debts of Essar group holding companies and close to $3 billion would go towards normalising the working capital level — including payment of dues to Iran for past purchase of oil by the Essar refinery, according to a company official. The Essar group would also have a no-compete agreement with the new management of Essar Oil.
Towards end June a consortium of 23 lenders led by State Bank of India gave the go-ahead to the deal after the Essar group agreed to repay some loans. Life Insurance Corporation was among the handful of lenders which insisted that Essar group must clear a part of the loan outstanding for obtaining an NOC to the deal. In most loan agreements NOC from lenders is a prerequisite to a change in ownership.
As per the deal, offshore holding companies, which control Essar Oil, would offload 98% stake. Rosneft would buy 49% stake in Essar Oil’s refinery, port and petrol pumps while the Netherlands-based Trafigura Group Pte, a large commodity trading house, and Russian investment fund United Capital Partners would split the balance 49% equity equally.
The balance 2% would be held by Ruias. The Essar-Rosneft deal is believed to be in the final stage. With Essar Oil about to change hands, Ruias are keen to retain their hold on Essar Steel.
The urgency to focus on Essar Steel and promise some fund infusion are significant after the Gujarat HC dismissed it’s plea against a RBI directive asking banks to begin bankruptcy proceedings against the company that owes banks Rs 45,000 crore.