Rosneft clears final hurdle for US$13 bn acquisition of Essar Oil

Officials from Russia’s national oil major Rosneft have said it has received the go ahead for the US$13 billion acquisition of Essar Oil, an India-based company engaged in the exploration and production of oil and natural gas. The deal was announced in October last year but was delayed due to approvals from lenders. According to sources, India’s state-run banks and financial institutions that hold about US$500 million of Essar’s debt had been a cause of the delay.

The deal will give the world’s largest listed oil producer, Rosneft, a 49% stake in Essar, while another 49% will be split between Swiss commodities trader Trafigura and Russian fund United Capital Partners. Essar’s founders, billionaire Ruia brothers, are to retain a 2% stake.

Analysts say for Rosneft the deal is a long-term strategic decision that could help the Russian state-controlled oil and gas giant to expand in Asia’s fastest growing energy market as well as create a better image on the international market, especially against the background of Western sanctions against Russia, which Rosneft is subject to.

However, sources in the Russian banking sector add that the deal was politically motivated by the Kremlin, and forced to go through despite the high price. It has been reported that in 2014, when the first negotiations for the deal took place, Rosneft estimated Essar Oil’s value at US$5

Essar Oil operates India’s second largest refinery and largest private sector oil retail network, Vadinar Refinery, which contributes to 9% of India’s refining output, with an output of 20 million tonnes/year. The deal also includes 3,500 oil retail outlets.

In the deal, US$2 billion will also be paid for the acquisition of Vadinar Port, which is a deepwater port on India’s western coast and has world-class storage and import/export facilities.

Rosneft Oil Company is the world’s largest petroleum company with revenues in excess of US$80 billion. Netherlands-based Trafigura Group is one of the world’s leading independent commodity trading and logistics group of companies with revenues of approximately US$100 billion. United Capital Partners 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. Earlier in 2007, Essar Group, together with Hutchison Whampoa, brought Vodafone into India through a 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, the firm stated in a press statement last year.