The Essar Oil Rosneft Deal May Deliver A Bounty To Erstwhile Shareholders 

Essar Oil, Rosneft to announce deal on Saturday, a high acquisition price will benefit erstwhile minority shareholders.

A logo sits on display above the headquarters of OAO Rosneft in Moscow, Russia. (Photographer: Andrey Rudakov/Bloomberg)
A logo sits on display above the headquarters of OAO Rosneft in Moscow, Russia. (Photographer: Andrey Rudakov/Bloomberg)

On Saturday, the Ruias controlled Essar Group is expected to announce a final deal involving the sale of a majority stake in group company Essar Oil to Russian energy giant Rosneft.

While Essar and Rosneft announced a non-binding agreement in July 2015, recent media reports suggest commodities trader Trafigura Group and Russian fund UCP will also participate in a deal.

On October 7, Bloomberg reported that ‘ The Indian conglomerate aims to sign a binding deal in the next two weeks to sell 49 percent of Essar Oil Ltd. to Rosneft, according to the people, who asked not to be identified because the information is private. Trafigura is also in advanced talks to buy a minority stake in Essar Oil, the people said. The suitors have been discussing a valuation of about $6.5 billion for Essar Oil, India’s second-largest private refiner, one of the people said.’

A few days later, media agency PTI reported that ‘Russian oil giant Rosneft, together with European commodities trader Trafigura and Russian fund UCP are likely to buy Essar Oil for about $13 billion, leaving a token 2 percent stake with existing promoters, the Ruia family. The deal, which includes taking over of $4.5 billion debt on Essar Oil books, is likely to be signed on Saturday in Goa, sources privy to the transaction said. Rosneft PJSC is likely to take 49 percent stake while Trafigura Group Pte and UCP will split another 49 percent equally among them. The Ruia family, which currently owns Essar Oil, will keep a token 2 percent stake ...’

Essar Oil delisted from the Bombay Stock Exchange (BSE) on December 30, 2015. Then it had a market capitalisation of Rs 38,000 crore, i.e., $5.75 billion. 10 months after the delisting, the promoters may sell 98 percent of the company for as much as 2.3 times that value.

Essar’s erstwhile minority shareholders will also benefit from any such appreciation in value, thanks to a SEBI order in November last year that directed Essar Oil’s promoters to compensate shareholders exiting via the delisting by paying them the difference, if any, between the delisting price of Rs 262.80 and the acquisition price determined when the deal is finalised. Shareholders have to be compensated within two months of the final deal announcement.

A stake sale will give the Essar Group much needed funds to reduce its debt, which stood over Rs 1 lakh crore in financial year 2015.

If the deal is done at $13 billion, it will be the costliest acquisition of an Indian company.