Mumbai: The country’s second biggest private refiner, Essar Oil Ltd, is close to buying a 50% stake in Kenya Petroleum Refineries Ltd, or KPRL, for about $450 million (Rs2,250 crore) after the Kenyan government dropped objections that had delayed the deal for at least one-and-a-half years, an Essar Group executive said on Monday.
An agreement is expected to be signed by the end of this month, and Essar Oil expects to finance the acquisition through a combination of internal accruals and debt, said the executive, who didn’t want to be identified because the transaction is yet to be concluded.
Essar Oil’s chief executive officer Naresh Nayyar said that his company was still in talks with the Kenyan government. “I cannot share the information at this point of time,” Nayyar said, adding that an agreement had still not been firmed up.
On high: An Essar Oil rig. The firm’s stock surged 48.38% on Monday.
The Mumbai-based company would be acquiring the 50% stake from existing shareholders Shell Petroleum Co. Ltd, British Petroleum Africa Ltd and Chevron Global Energy Inc.
The remaining half of KPRL is controlled by the Kenyan government.
Essar Oil’s stock on Monday surged 48.38% to close at Rs119.15 on the Bombay Stock Exchange, or BSE, even as the Sensex, the exchange’s bellwether, gained 1.8% to 10,534.87 points. Trading volume in the stock rose to 42.48 million shares—about 10 times the average daily volume in the past one month
“Fundamentally, there was no trigger for such a rally of stock in the market. Even the KPRL acquisition could not be the reason behind the aggressive movement in the stock,” said an analyst tracking Essar Oil for a domestic brokerage who didn’t want to be named. He attributed the surge to speculative trading.
Kenya’s government had earlier blocked the deal on grounds that it would imperil the energy security of the country. The government had wanted the 50% stake to be shared by at least two entities to ensure that it would remain the majority shareholder and retain control over the firm.
It still holds the first right of refusal to the sale of the combined stake of the three other shareholders, but is yet to indicate whether it will exercise this right.
On 25 March, Kenyan newspaper Daily Nation quoted energy minister Kiraitu Murung as saying the government has decided to waive its pre-emptive rights to allow Essar to acquire the stake in the refinery.
On Monday, another Kenyan newspaper Business Daily said the Kenyan government and Essar Oil had failed to reach an agreement on who between them should take management control of the facility.
“Though some technical problems still remain on the acquisition, the Kenyan government has largely cleared the deal and it should be closed by month end,” the Essar Group executive said.
“The latest discussions are on the management control and is expected to (be) sorted out shortly,” he added.
If the deal finally happens, Essar’s first international purchase in the refining sector will give it a toehold in the African refining market and a refining capacity of 1 million barrels per day.
KPRL’s unit in Mombasa is the only refining facility in east Africa, with a 4 million tonne (mt) annual capacity.
Other companies, including India’s Reliance Industries Ltd and Libya’s Tamoil Africa Holdings Ltd, had also expressed interest in the refinery.
Essar Energy Overseas Ltd, a subsidiary of Essar Oil, won the right to buy Shell Petroleum’s 17.1% stake, British Petroleum Africa’s 17.1% and Chevron Global Energy’s 15.8% following a competitive selection process.