The deal, in the works for a few months, is likely to be announced today
The Ruias of the Essar group are set to sell 49 per cent stake in Essar Oil to Russian oil and gas giant Rosneft for about Rs 10,500 crore (Rs 105 billion).
The deal is likely to be announced on Tuesday.
The transaction was in the works for the past few months. Currently, a team of senior officials of the Essar group, led by promoter Prashant Ruia, is in Moscow to close the deal.
“Now, the talks have narrowed down to valuation and an announcement is expected anytime,” said a banker close to the development.
The transaction will lead to an open offer for minority shareholders, according to the Securities and Exchange Board of India’s takeover norms.
On Monday, the Essar Oil stock closed at Rs 146, up 4.72 per cent. In the past four trading sessions, it soared 43 per cent, as speculators bet on an imminent transaction. The company’s total market value stood at Rs 21,163 crore (Rs 211.63 billion) as of Monday.
The Ruias, along with Essar Energy Plc, own 90 per cent stake in Essar Oil; after the deal, it will be a minority shareholder.
“The Ruias wanted to hedge their risk on crude oil prices and wanted a stable supplier of crude oil and Rosneft fits the bill,” the banker said.
When contacted, an Essar Oil spokesperson said the company didn’t comment on market speculation.
“Last week, the company had informed the stock exchanges that there was no event or development required to be submitted to stock exchanges according to the listing agreement,” he said.
The Ruias and Rosneft already have close business ties. In December last year, Rosneft had entered into an agreement to supply Essar oil and oil products for its refinery in India.
With this, Rosneft expanded its distribution area and scaled up its deliveries to the region. The deal provided Rosneft a secure market outlet for oil and oil products, while Essar gained due to a reliable and stable supply of oil and oil products for its refining facilities.
Essar Oil runs a refinery at Vadinar in Gujarat, with an annual capacity of 20 million tonnes.
It also owns the Stanlow Refinery, with a capacity of 296,000 barrels a day, near Liverpool in England.
As of now, 35-40 per cent of Essar Oil’s crude oil requirement at Vadinar comes from West Asia and 15-20 per cent from domestic suppliers, while the rest is transported from South America.
With an assured crude oil supply from the Russian company, Essar Oil will be able to cut its costs.
Essar Oil also had payment issues with Iran, following the US and the European Union imposing sanctions on the West Asian country.
For 2014-15, Essar Oil’s gross revenue fell 13 per cent to Rs 92,983 crore (Rs 929.83 billion) from Rs 1,07,190 crore (Rs 1,071.9 billion) in 2013-14; its net profit stood at Rs 1,521 crore (Rs 15.21 billion), against Rs 126 crore (Rs 1.26 billion) in FY14.
The rise in profit was primarily due to high gross refining margins of about $10 a barrel.