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Highlights


Essar aiming to expand refining capacity, retail outlets

Company restructures board, gets new chairman, CEO

Deal seen to boost India's ties with global oil market

Singapore — Russia's Rosneft and a consortium led by Trafigura have closed a deal to buy India's second-largest private refiner Essar Oil in a deal that gives the oil companies access to a world-class refinery and an expanded footprint in one of Asia's fastest growing oil markets.

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Essar said in a statement Monday that Essar Energy Holdings Ltd. and Oil Bidco Ltd. -- the controlling shareholders of Essar Oil Ltd. -- had successfully concluded the sale of 98.26% of Essar Oil.

Rosneft, through its subsidiary Petrol Complex Pte. Ltd., had acquired a 49.13% stake, while the Trafigura-UCP consortium, through Kesani Enterprises Company Limited, had also acquired a similar stake. The remaining 1.74% stake will continue to be held by retail shareholders, it added.

Trafigura said in a separate statement that Tony Fountain had been appointed chairman and non-executive director of Essar Oil. In addition, B. Anand was appointed the new chief executive officer with immediate effect, replacing Lalit Kumar Gupta who would continue to remain with the company as a senior adviser to the board to support future growth plans.

The $12.9-billion deal closed 10 months after the initial agreement was signed during the BRICS Summit in Goa in the presence of Indian Prime Minister Narendra Modi and Russian President Vladimir Putin.

The transaction follows an agreement signed between Rosneft and Essar in July 2015, under which the former agreed to take a stake in the refinery and also supply 100 million mt of crude oil to the Vadinar refinery for 10 years.

The latest deal is Russia's single largest foreign investment ever, and is expected to help boost Russo-Indian economic ties. It is also the single largest foreign direct investment in India, the Essar statement said.


GROWTH STRATEGY


The deal includes Essar's 20 million mt/year Vadinar Refinery, which has a complexity index of 11.8, as well as its network of over 3,500 retail outlets, in addition to associated refinery infrastructure. The sale also includes the Vadinar Port, with a capacity of 58 million mt, and the Vadinar power plant -- a 1.010-GW multi-fuel unit that supplies both power and steam to the Vadinar refinery, the Essar statement said.

Essar under the new management would aim to expand retail outlets to 6,000, as well as look to double its refining capacity, company officials said, but did not provide any timeframe.

"The closing of the deal is a remarkable achievement for Rosneft too: the company has entered the high-potential and fast-growing Asia-Pacific market.

"The acquisition of the stake in the Vadinar refinery creates unique opportunities of synergies with existing Rosneft-owned assets and will help improve efficiency of supply to other countries within the region," Rosneft CEO Igor Sechin said.

Trafigura CEO Jeremy Weir added: "Essar Oil will now be able to take advantage of the strengths of its international investors to further develop and enhance value to this world class asset. Our stake in Essar Oil also complements Trafigura's growing presence in India at a time when the country's economic outlook is positive."


GROUND PRESENCE


The deal signals Russia's efforts not to be over-dependent on China and rather have the early-mover advantage in another growing market. It also highlights the strategic push by leading oil trading companies, such as Trafigura, to own assets in key markets, rather than just act as middlemen.

The move would also help Trafigura expand its Asian footprint -- both by shipping in crude and supplying products to other Asian demand centers -- helping to build stronger customer ties and fight competition from Vitol, Glencore, Mercuria and Gunvor, analysts have said.

The Vadinar refinery could also be a potential hub for Rosneft to churn out products for the Asia Pacific region, given that 40-50% of its output is exported.

Industry leaders and officials said that the deal would help strengthen India's relations with the international oil market.

"With Essar successfully concluding the $12.9-billion Essar Oil deal, Rosneft and the Trafigura-led consortium will now be an active partner in India's glowing growth story and give a major impetus to India's oil sector in the international market," CEO of government policy think tank NITI Aayog, Amitabh Kant, said.

--Sambit Mohanty, sambit.mohanty@spglobal.com
--Ratnajyoti Dutta, newsdesk@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com