Essar, Rosneft deal is US-sanctions compliant; will not exit oil & gas biz, says Ruia
Ruia said the parent company's debt would be cut by some $5 billion and a further $5 billion would go towards trimming debt at the operating company level
Clearing the air over the US-led sanctions on Russia, Essar Group's CEO said the decision to sell 49 percent control in Essar Oil to Rosneft for $12.9 billion did not in any way violated the sanctions imposed on the state-owned Russian energy firm.
Essar Group's chief executive, Prashant Ruia said on Saturday that the deal gives Rosneft, commodities trading house Trafigura and private investment group United Capital Partners a 98 percent stake in Essar's oil arm, and is "US-sanctions compliant."
He said the deal did not violate the economic sanctions imposed by the U.S. government on Russian entities over Russia's role in the Ukraine crisis. "The way it is structured, it is fully compliant. We are well within the rules that govern Russian companies," a Reuters report said.
"It was an emotional decision, it was a very tough decision. It was difficult decision for people involved in the company and those who were involved in the business and building it," Reuters reported quoting Prashant Ruia.
Ruia said the parent company's debt would be cut by some $5 billion and a further $5 billion would go towards trimming debt at the operating company level.
Some of the proceeds from the transaction will be pumped into existing businesses, said Ruia, adding that the group does not have any plans to sell any of its other businesses in the future or any plans to de-list them to gain more control.
Debt-laden Essar Steel, which owns a 10 million tonne steel plant in the western state Gujarat, carries debt of over $5 billion and had been seeking to restructure its debt.
"We plan to utilise proceeds from the stake sale to deleverage the Group and pave the way for strategic consolidation and growth in other businesses. Deal will help Essar deleverage almost 50 percent of its Rs 88,000 crore debt and substantially reduce interest costs," said Essar Group Director Prashant Ruia.
The remaining debt, he said, would continue in the assets and "normal operating company" debt. "We believe majority of the debt at the holding company level will be deleveraged."
"This is the largest debt reduction/deleveraging exercise in corporate India," he said.
The transaction pegs Essar Oil's enterprise value at Rs 72,800 crore ($10.9 billion) plus an additional Rs 13,000 crore ($2 billion) that will be paid for Vadinar Port that is captive to the refinery.
"This makes it the largest inbound FDI into India," he said.
Further, the debt-laden Essar Group has said it is not exiting the oil and gas business and the $12.9 billion sale of its oil refinery to Rosneft has helped to deleverage half of the Rs 88,000 crore debt at the holding company level.
As per the agreement, Essar decided to sell 49 percent stake in the 20 million tons a year Vadinar refinery in Gujarat, the adjacent port and over 2,700 petrol pumps to world's largest listed oil company.
Ruia said Essar was not exiting the oil and gas business and will continue to own and operate the 12 million tons refinery at Stanlow in UK which has a 12-13 percent market share in Britain.
Also, the exploration and production assets of Essar Oil, mainly the producing coal-bed methane (CBM) blocks in West Bengal will not be part of the deal and would continue with the Group, he said.
"Our philosophy as a group has been to make significant investments in infrastructure space, incubate it, nurture the business and help it build to world scale and monetise the value at the right time," he said.
Essar did the same with telecom business when it first got Hong Kong-based Hutchison Whampoa and then sold stake to Vodafone 2011 at an enterprise value of $18 billion.
There is no non-compete fee under the transaction with Rosneft.
VTB has provided financing of $3.9 billion to Essar to refinance the holding company debt pending completion of the transaction.
With PTI inputs
The Chinese government, meanwhile, kept investors guessing about whether it might intervene.
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