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Rosneft may have to rejig Essar Oil deal

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by August 26, 2016 General

Russia’s might have to restructure its deal with Ruia-promoted Oil that was banking on a stake sale to the state-owned company, to retire a major chunk of its group debt of Rs 88,000 crore.

Though the US and EU preceded the signing of a non-binding agreement by the two in July 2015, major lenders to Essar Oil UK-based Standard Chartered Bank and ICICI Bank, which is listed on the New York Stock Exchange, have fears of attracting sanctions.

Besides, India government-owned banks have apprehensions that their own operations in the US would be hit as Rosneft is on the negative list. “We are trying to structure the probable exposure to Rosneft in such a way that it would not impact the Indian lenders like State Bank of India, Bank of Baroda, and Bank of India who have operations in the US,” said a banker. These banks have apprehensions that their own operations in the US would be hit as Rosneft was on the negative list, he said.

The companies have missed the June 2016 deadline for closing the deal. After the visit of chairman of Rosneft’s management board Igor Sechin to India in March 16, 2016, the two companies said they “intend to sign and close the transaction by the end of June 2016 upon obtaining all necessary permits”.

Five major state-owned Russian banks and three energy companies are under the EU sanctions. On July 1, 2016, the European Council extended the economic sanctions targeting specific sectors of the Russian economy until January 31, 2017. These measures were introduced on July 31, 2014, initially for one year in response to Russia’s actions in Ukraine.

The US sanctions that came in March 2014 apply to six of Russia’s largest banks and four energy companies, including individuals in Russian President Vladimir Putin’s inner circle.

“We are hopeful that the deal will be signed by this October,” a senior Essar official said on Friday. Essar was planning to sell 49 per cent stake to Rosneft and another 25 per cent stake to Singapore-based commodity trader, Trafigura group, thus reducing the Ruias to minority shareholders. The total valuation of the company was pegged at approximately $6 billion.

In preparation for 49 per cent stake sale, Essar Oil promoters through Oil Bidco (Mauritius) Limited bought 1.01 billion publically held shares in the company in December 2015 for Rs 3,745 crore.

When asked about the Essar Oil investment, a Rosneft official said the work on the transaction was in progress. “We are negotiating with our Indian partners. Currently, we cannot disclose the details of those negotiations. That’s standard corporate practice that we don’t comment on any ongoing negotiations. But I think that the guidance that we have provided in terms of our intention to go into that transaction remains unchanged. But, negotiations continue, and we will be keeping the markets informed, as we need to make any additional disclosures,” said the spokesperson on August 17.

The Ruias had signed the deal with Rosneft in July last year and since then the company has moved its deal closure date twice.

The transaction is important for the Ruias as the Essar group has been under pressure from banks to reduce debt. The group was planning to sell 30 per cent stake in its steel company but dropped the plan as it could not find any takers. In the last few years, the group sold its US-based business process outsourcing unit for $610 million (Rs 4,119 crore), Vodafone India stake for $5 billion (Rs 33,000 crore) and real estate including an office complex in Bandra Kurla Complex for Rs 2,700 crore.

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