Decks cleared: Essar, Rosneft complete $12.9-billion deal

Deal, expected to close by March, dragged on due to US sanctions on Russia, besides lender approval

Decks have been cleared for the biggest foreign acquisition ever in India. The completion of the $12.9-billion Essar Oil buyout by Russian government-owned Rosneft and other partners is expected to be announced on Monday. The deal, signed in October 2016, went through a lot of hiccups, with the lenders to the Ruia-controlled Essar group insisting on certain conditions. 

Among the last to approve the deal was Life Insurance Corporation (LIC) of India. The Mumbai-based Essar group owed over Rs 2,300 crore to LIC, part of which has been repaid. Around Rs 1,200 crore is said to be pending.

The Essar group had in October 2016, signed a deal with Rosneft, United Capital Partners and Trafigura group to sell 98 per cent equity in Essar Oil. The proceeds from the sale were expected to help the group reduce its debt, which stood at around $13.5 billion at the time of signing the deal.

The deal was expected to close by March 2017 but dragged on because of the US sanctions on Russia, besides lender approval.

Lenders to the group include ICICI, IDBI Bank, Punjab National Bank, Syndicate Bank, Indian Overseas Bank and IFCI. 

Essar Steel, another group company, is undergoing insolvency proceedings after the Ahmedabad bench of the National Company Law Tribunal (NCLT) admitted an insolvency petition against the firm. The Reserve Bank of India identified the firm among top 12 stressed assets and asked the bankers to file for insolvency against the firm.  The steel firm has about Rs 45,000-crore debt on its books with non-performing assets of Rs 32,000 crore in 2016-17.

The Essar Oil deal is valued at $10.9 billion for acquisition of the 20 million tonne Vadinar refinery in Gujarat and also the downstream business of petroleum retailing, including some 2,700 outlets. The three-way consortium is paying an additional of $2 billion for the acquisition of Vadinar Port.

Controlling shareholders of Essar Oil — Essar Energy Holdings and Oil Bidco (Mauritius), both companies incorporated and managed in Mauritius — had entered into separate definitive agreements for the stake sale. The first sale and purchase agreement included the sale of 49 per cent to Petrol Complex Pte. Ltd (a subsidiary of PJSC Rosneft Oil Company); the second envisages the sale of the remaining 49 per cent to Kesani Enterprises Company (owned by a consortium led by Trafigura and United Capital Partners).

The deal is also Russia's largest outbound deal.