 "A logo of Russian state oil firm Rosneft is seen at its office in Moscow")
The board of Russian oil major Rosneft is meeting on October 13 to clear the way for buying 49 per cent stake in the Ruia-promoted Essar Oil at an enterprise valuation of $6.5 billion.
The transaction was delayed as a few Indian banks were not ready to take exposure in the new Russian owner and were worried of facing American and European sanctions.
A source directly involved with the talks said the lawyers from both sides met in London recently to make the transaction sanctions-compliant. Indian banks have Rs 27,000 crore of debt exposure in Essar Oil and are apprehensive that their exposure in Rosneft-owned Essar Oil might jeopardise their investments in the US and in European Union (EU).
The US and EU had imposed economic sanctions on Russia after the latter took over Crimea region of Ukraine in 2014. These sanctions bar any business relations with Russian companies with outside companies.
A lawyer close to the development said the sanctions would trigger only if Rosneft buys more than 50 per cent stake in Essar Oil.
“But as Rosneft’s stake is below 50 per cent, the US sanctions would not impact the Indian banks. The lawyers discussed arguments on how the Essar-Rosneft deal will not negatively impact Indian banks,” he said.
The deal was delayed for more than a year and missed several deadlines. The managements of both Essar Oil and Rosneft are now targeting to close the deal by this month-end. Apart from Essar Oil, Singapore-based commodity trader Trafigura is also buying a 25 per cent stake in Essar Oil, thus reducing the Ruias to a minority shareholder.
The transaction is important for both the Ruias and Rosneft. The transaction would help the Essar group reduce its debt, which has crossed Rs 88,000 crore as of March this year.
At the same time, Rosneft would be able to sell its crude produced in Russia to Essar Oil refinery in India. Rosneft will also use Essar Oil’s retail outlets to sell its finished products directly to customers.
Apart from the refinery, the company will also take over a power plant that supplies electricity to the refinery and the captive port.
WIN-WIN DEAL
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July 2015: Essar Oil announces sale of 49% stake to Rosneft
