Mergers & Acquisitions

Essar Oil agrees to sell equity stake in Vadinar refinery to Rosneft

Expanding on the scope of its partnership with OJSC Rosneft Oil Company (Rosneft), the Essar Group signed a non-binding agreement to sell up to a 49% equity stake in the Vadinar Refinery in India to the Russian oil major.

The proposed transaction is conditional upon various factors such as due diligence, determination of the transaction price, execution of definitive transaction documents and receipt of requisite approvals.

Essar Oil is a fully integrated oil and gas company with strong presence across the hydrocarbon value chain from exploration & production to refining and retail.  However, more than 90% of its revenue is derived from the refining segment. It owns India’s second largest single site refinery, Vadinar, which has a capacity of 20 million metric tonnes per annum (MMTPA) and a complexity of 11.8, which is amongst the highest globally.

There are about 1,500 Essar-branded oil retail outlets in various parts of India, with another 1,500 in various stages of implementation. In the fourth quarter of Fiscal Year ending March 2015, Essar reported that retail sales now accounted for 8% of its total revenues, compared to 2% in the same period a year ago. The agreement also includes a plan to increase the number of Essar Oil’s retail sites to 5,000 within the next two years.

The two companies also plan to boost Vadinar’s refinery output from 20 to 45 MMTPA by 2020.

This announcement came right after the signing of a long-term crude oil supply agreement between Essar Oil Limited and Rosneft, wherein the latter will supply Essar crude oil over a period of 10 years. The key terms of this agreement were agreed upon last December in New Delhi, India.

“The performance of the terms of the signed documents will have a substantial impact on the scale of economic cooperation between Russia and India. The goods trade between the two countries will grow by more than 50%,” said Rosneft Chairman Igor Sechin.

Prashant Ruia, chairman of Essar Oil Limited, expressed hope that these agreements will give a boost to increased cooperation in the hydrocarbon sector between India and Russia.

Business Standard reported that the deal could potentially provide Essar Oil Limited with more than INR 10,500 crore (USD 1.6 billion), which might help the company reduce its debt burden. As of June this year, it had a debt of INR 17,000 crore (USD 2.6 billion) on its books.

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