Rosneft-led consortium buys India’s Essar Oil for $13bn

Essar Group has agreed to sell a 98 percent stake in its Essar Oil unit to a group of investors led by Russia’s Rosneft

Leaders Vladimir Putin and Narendra Modi were both involved in the Rosneft deal 

A consortium led by Russia’s state-owned oil giant Rosneft has agreed to purchase India’s second-biggest private oil firm, Essar Oil, in a deal valued at $13bn. The all-cash acquisition, which includes the assumption of Essar Oil’s $5.5bn debt, marks the largest foreign direct investment in India to date.

The deal was in the presence of Indian Prime Minister Narendra Modi and Russian President Vladimir Putin at a BRICS summit in Goa on October 15. Rosneft will take a 49 percent stake in Essar Oil, while Dutch multinational Trafigura Group and private investment group United Capital Partners will take the remainder of Essar Oil’s equity. The deal will give the consortium control of Essar’s 20 million tonne refinery in the western state of Gujarat, as well as its network of 2,700 filling stations and pan-Indian retail outlets.

“It is a historic day for Essar”,  Essar Group Chairman, Shashi Ruia. “The transaction demonstrates our unique ability to build world-class assets and create immense value in our businesses. The monetisation of our stake in Essar Oil will help drive the next level of growth for our other businesses.”

The multi-billion-dollar investment gives Russia a foothold in one of the world’s fastest-growing oil markets

The multi-billion-dollar investment gives Russia a foothold in one of the world’s fastest-growing oil markets. Already the world’s third-largest oil consumer, India’s petroleum demand is set to swell. Over the next five years, Indian demand for refined petroleum products is expected to grow by between five and seven percent, placing the Essar Oil stakeholders in a strategic position in the global oil market.

Western sanctions against Russia have seen Moscow increasingly seek to expand its energy operations in Asia. The nation has been strongly encouraging Chinese investment in its large-scale energy projects and, in May of this year, Russia agreed to supply its new energy partner with hundreds of billions of dollars of natural gas over the next thirty years.

“This is a significant milestone for the company”, Rosneft CEO Igor Sechin in a statement. “Rosneft is entering one of the most promising and fast-growing world markets.” Sechin went on to comment that the deal was “consistent with Rosneft’s enhanced presence in the fast growing markets of other APR [Asia-Pacific Region] countries, such as Indonesia, Vietnam and The Philippines”.

While India’s promising petroleum and natural gas industry is attracting increased foreign investment, the Rosneft-led deal marks the most significant transaction to date. As Indian consumption of oil continues to rise, Rosneft and its partners look set to capitalise on this rapidly-expanding market, strategically positioning themselves as future leaders in the global oil industry.

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