 "Ruias sell Essar Oil, Vadinar Port for Rs 86,100 crore")
“This is the largest foreign direct investment (FDI) into India and wipes off half of the Essar group’s debt,” Prashant Ruia, director of Essar group, said in Panaji, Goa, on Saturday. The transaction was announced in the presence of Indian Prime Minister Narendra Modi and Russian President Vladimir Putin on the sidelines of the BRICS Summit in Goa.
The company said 49 per cent of Essar Oil’s stake will be picked up by Rosneft, while the remaining 49 per cent stake will be sold to Trafigura and UCP equally at an enterprise valuation of Rs 72,800 crore. An additional Rs 13,300 crore will be paid for the acquisition of Vadinar Port. The transaction also involves 2,700 retail outlets currently owned and operated by Essar Oil.
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“It was our strategy to construct world class assets and then sell it at the right time. Till date, the deals we have done have led to an FDI infusion of more than $30 billion into India,” Ruia said. “As we were getting the right valuation, we decided to sell our entire stake,” Ruia said, adding that the promoters will not get any non-compete fee.
The deal value would be far higher than the delisting price of Rs 262 a share at a valuation of around $6 billion. Minority shareholders will get the differential amount, Ruia promised. The group had delisted the company in December after it signed a non-binding agreement with Rosneft in July 2015.
The proceeds of the sale will be used to repay loans of both foreign and local lenders, which was around Rs 88,000 crore, Ruia said. Earlier, the Ruias had sold their 33 per cent stake in the wireless telephony company to Vodafone Plc for $5.4 billion.
Chanda Kochhar, MD & CEO, ICICI Bank, said, “I welcome the announcement. This deal is the largest ever foreign acquisition in India. It proves the attractiveness of the Indian energy market to foreign investors as India is one of the fastest growing fuel consuming economies in the world. This deal is also a significant step in the process of deleveraging the balance sheets of Indian corporates. ICICI Bank has been closely working with various companies, including the Essar Group, to help them deleverage their stressed balance sheets. We will continue working towards this objective with others.”
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 five to seven per cent 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 (mt) oil refinery in Vadinar, which accounts for nine per cent of India’s total refining output, is supported by a 1,010 Mw captive power plant. The additional Rs 13,300 crore that the new stakeholders have agreed to pay is for the 58-mt deep draft port in Vadinar that helps in importing crude and exporting finished products.
“This is a significant milestone for us. 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 fast-growing markets of other countries, such as Indonesia, Vietnam and the Philippines,” said Igor Sechin, CEO of Rosneft — the world’s largest petroleum company with revenues around $80 billion (around Rs 5.33 lakh crore).
Trafigura Group is one of the world's leading independent commodity trading and logistics group with revenues of about $100 billion (around Rs 6.67 lakh crore). United Capital Partners (UCP) is a large independent Russian private investment group with investments of around $3.5 billion (Rs around 23,349 crore) in various industrial sectors.
“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,” Essar Group Chairman Shashi Ruia said.
After the transaction, the Essar group will be left with its power projects, port operations, Stanlow refinery in the United Kingdom and shipping operations. The group’s revenues will shrink 30 per cent.
A WIN-WIN DEAL
- Ruias sell Gujarat refinery to Rosneft, Trafigura, UCP for Rs 86,100 cr
- Transaction includes Rs 72,800 cr for Essar Oil’s refining and retail assets, Rs 13,300 cr for Vadinar Port and related infrastructure