Fis Ask Ruias To Sell Oil Rigs

Financial institutions (FIs) have asked the Ruias, promoters of the Essar group, to raise Rs 400 crore by selling the drilling rigs of Essar Oil if it fails to bring in a strategic partner.

The FIs have put this rider as part of the conditions for providing financial assistance to the Rs 7,500 crore, 10.5 million tonne refinery project in Gujarat being set up by Essar Oil.

The Ruias have been in negotiations with public sector major Bharat Petroleum Corporation Ltd (BPCL) and the Oman Oil Company for roping in either of them as a strategic partner.

Although the negotiations are on for over a year, no final decision has been taken yet.

 

Institutions, which have already invested around Rs 3,000 crore in the project, have decided on an additional funding of up to Rs 1,184 crore.

When contacted, a senior official in Essar group said, "We are prepared to abide by any condition put by the FIs for achieving the financial closure of the project."

"As a back-up to bringing in foreign equity, we have told the institutions that the company is willing to dispose of the upstream assets of the company to bring in Rs 400 crore. But selling the assets is only a back-up in case we are unable to bring in a strategic partner. It is, however, not the preferred option," he added.

The upstream assets include 3-4 exploration blocks, including the Ratna oilfields and the drilling rigs.

The official said Essar has three options to bring in the Rs 400 crore as part of the equity funding. The first, by making claims of loss of profit with the insurance companies; the second, by selling 26 per cent equity to a strategic partner; and third, by unloading a part of the upstream assets.

Divesting 26 per cent in Essar Oil is expected to rake in around Rs 800-900 crore, the official said.

BPCL had earlier said that it did not want Essar Oil's upstream activities and that these should be hived off first. The company had sold two of its rigs earlier. The financial institutions had recently agreed to funding the refinery project to achieve financial closure. ICICI is the lead financial institution to the project. The institutions have also agreed to open a letter of credit for an amount aggregating to $289 million after ABB, the project engineering and procurement contractor, had agreed to provide a guarantee completion of the project.