Russian oil champion Rosneft and its partners have wrapped up the US$12.9 billion purchase of India’s Essar Oil, marking the biggest direct foreign investment in India’s history.
In a statement on August 21, Rosneft said it had closed a deal to land a 49.13% stake in the Indian fuel supplier, whose prize asset is the 400,000 bpd Vadinar refinery on India’s western coast. The shares were sold by Essar Group, a Mumbai-based conglomerate under the control of India’s billionaire Ruia brothers. Rosneft also noted that its partners – commodity trading giant Trafigura and Russian investment fund United Capital Partners – had finalised the takeover of a further 49.13% share in the company. The remaining 1.75% of Essar Oil’s equity is held by minority shareholders who refused to tender their stock when the company was delisted early last year.
“For Essar, the closure of this landmark transaction ushers in a new phase of growth across our portfolio of businesses that hold great promise in India’s enduring development story,” the group’s founder Shashi Ruia said in a statement. Rosneft CEO Igor Sechin, meanwhile, noted that the acquisition would allow the Russian state-owned company to tap the “high-potential and fast-growing Asia Pacific market” while creating synergies with Rosneft’s existing operations.
Besides its refinery at Vadinar, Essar Oil also controls a chain of over 3,500 filling stations across India. The deal will therefore give Rosneft unprecedented access to the Indian fuel market, which Goldman Sachs expects to grow by 5.9% per year through 2020.
Rosneft’s partnership with Essar began in July 2015, when it struck a contract to ship 100 million tonnes of oil and oil products to the Vadinar refinery over a ten-year period. This week’s acquisition was first announced in October last year, but its closure was delayed by opposition from debt-ridden Essar Oil’s Indian lenders.
Rosneft is anxious to open up new markets in the Asia-Pacific region to counter its overreliance on sales to China. It has also set out plans to build a refinery in Indonesia, although a concrete agreement on construction work has not yet been reached.
The Russian major aims to double the Vadinar refinery’s oil processing capacity as well as build petrochemical facilities at the site. It also wants to expand its distribution network to around 6,000 stations. This expansion plan will place considerable financial strain on Rosneft, as will the US$6 billion of Essar Group’s debt it assumed as part of the takeover deal.
According to Reuters reports, Rosneft may opt to supply the Vadinar refinery with Venezuelan crude, which serves as a more suitable feedstock than Russian blends. The producer noted this week that its stakes in Venezuelan upstream assets as well as offtake contracts with Venezuelan oil company PDVSA would help improve economics at Vadinar.