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Essar Oil Ltd, India’s second largest refiner outside government control, is in talks with overseas oil trading companies to sell 23.5% in the company, according to two people aware of the development.
“They are in talks with several international oil trading companies including Trafigura Group Pte, Glencore Plc and others,” said one of the people cited above, requesting anonymity as the talks are private. Essar Oil is in talks with few oil trading companies and is currently assessing their interest in purchasing a stake, which will take into consideration several factors including the type of oil produced.
“Talking is not enough, one has to assess their interest in purchasing stake which depends on – the type of oil that they produce, are they oriented towards the Indian geography etc. It will reach the M&A desk once the initial talks are done and one can get clarity in another two weeks on who is leading the talks,” said the second person, also requesting anonymity.
The talks with the international trading companies is being led by the international trading desk of Essar, the person said. The process got delayed as the international trading head of Essar quit the company, the person said. Srinivas Tuttagunta was part of the leadership team at Essar Oil and head of International Supply and Trading. He quit Essar Oil early this year.
The refiner is expected to sell 49% to OAO Rosneft of Russia and about 23.5% to oil trading companies such as Glencore and Trafigura in a deal that is expected to close by the end of this month or early next month, the first person said. “Twenty-six percent will stay with the group and the remaining 1.5% to financial shareholders whose identity is not known,” said the first person.
“At a later stage, the promoter group might also look to exit fully,” said the second person. Last year, Essar Group agreed to sell as much as 49% of Essar Oil to Rosneft that could value the business at about $6.5 billion.
The deal will give Essar Oil access to Rosneft’s crude, and the Russian firm, in return, will get a toehold in the Indian refining and fuel retailing market. Essar Oil runs the 20 million tonnes a year Vadinar refinery and owns 1,600 petrol stations. The second person said the deal had some last minute roadblocks over valuations but both companies have sorted out the issues. The person did not disclose details of issues regarding valuations.
Essar Oil declined to comment on the names of the international oil trading companies. “The transaction for Rosneft to purchase 49% in Essar Oil is at an advanced stage. Definitive agreements will be executed in July 2016 and appropriate announcements will be made in due course,” an Essar Oil spokesperson said.
An email sent to Glencore went unanswered. A Trafigura spokesperson also declined to comment. “A deal with Rosneft and an oil trading company would mean a good combination of a crude oil supplier as well as a global oil trader for the asset. The deal could also be a reflection of the confidence international community has in Indian businesses,” said a senior official from a multinational professional services firm.
The deal is equally important for the debt-laden Essar Group, which has been trying to sell assets across its steel, power and refinery businesses. Once the Rosneft deal is officially closed, Essar Oil’s refinery at Vadinar in Gujarat is likely to begin receiving crude oil from Rosneft. Last July, Essar Oil signed an agreement with Rosneft for supply of 10 million tonnes of crude per annum to the Vadinar refinery in Gujarat for 10 years.
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