Mumbai: A consortium of 23 lenders led by State Bank of India (SBI) on Friday cleared the Rs86,000 crore sale of Essar Oil to a group led by Russia’s state-owned oil giant Rosneft after the Essar group agreed to clear a part of Rs26,000 crore of its debt, including loans from Life Insurance Corp. of India (LIC).
People close to the development, who spoke on condition of anonymity, said Essar group hopes to conclude the all-cash deal to Rosneft by 10 July. This is the largest foreign investment in India till date.
When asked whether the 23 lenders also include LIC, to which the company owes Rs1,290 crore, an official answered in the affirmative.
According to the people cited above, the agreement came after the Ruia family, the promoters of Essar group, agreed to clear most of the Rs26,000 crore of dues to the lenders on completion of the transaction and transferring the remainder to a new owner, which is better-rated.
However, the people did not elaborate on how much of the existing loans will be cleared.
“The fact is that LIC has nothing to do with Essar Oil. The Rs1,290 crore loan from LIC is towards Essar Power. But still we decided to clear that loan by agreeing to pay Rs850 crore to LIC," an Essar official told PTI.
LIC’s refusal to clear the sale was one of the biggest stumbling blocks to the completion of the deal which was signed on 15 October last year in the presence of Prime Minister Narendra Modi and Russian President Vladimir Putin on the sidelines of the BRICS summit in Goa.
The Rs86,000 crore transaction involves the Ruia family completely exiting its flagship firm, which will be taken over by Rosneft and a consortium led by Trafigura-UCP.
“The joint lenders’ forum of 23 lenders led by SBI and ICICI Bank met here this morning and approved and authorized the release of shares of Essar Oil to facilitate the stake sale to Rosneft and the investment consortium led by Trafigura and UCP," the company said.
The refinery at Vadinar on the west coast of Gujarat has a debt of Rs26,000 crore. Out of this, SBI alone accounts for around Rs3,500 crore. While a text message to the state-owned lender did not elicit any response, a person at ICICI Bank confirmed it.
Igor Sechin, chief executive of Rosneft, had told the company’s annual general meeting on Thursday in Moscow that the transaction with Essar Oil could be “considered as closed".
The deal involves the 20 million tonne per annum refinery in Vadinar, along with 3,500 oil retail outlets across the country, a 1,010 megawatt captive power plant and 58 million tonne port facilities.
The refinery accounts for almost 9% of India’s total oil refining output, according to Essar. Snapping up the refinery would get Rosneft a strong foothold in the world’s fastest growing fossil fuel market that is India, where oil demand is expected to grow 5-7% in the next five years, as per industry estimates.
The deal involves Rosneft buying 49% stake in Essar Oil’s refinery, port and petrol pumps, while Netherlands-based Trafigura, one of the world’s biggest commodity trading companies, and Russian investment fund United Capital Partners will snap up another 49% equity equally.
The remaining 2% will be held by minority shareholders after delisting of Essar Oil.
The deal has an enterprise value of close to $12.9 billion—$10.9 billion for the refinery and for the filling stations and another $2 billion for the Vadinar port.
The deal factors in Essar Oil’s debt of about $4.5 billion, and about $2 billion of debt with the port company. The deal, however, excludes around $3 billion of dues to Iran for past oil purchases by the refinery.
Russia’s VTB Bank will lend Essar $3.9 billion to restructure debt, while Rosneft itself will pay about $3.5 billion to Essar.