Rosneft, Trafigura Said to Near Deal for $6.5 Billion Refinery

(Bloomberg) -- Essar Group, controlled by India’s billionaire Ruia brothers, is nearing a final agreement to sell control of its refinery unit to Russian energy giant Rosneft PJSC and commodities trader Trafigura Group Pte, people with knowledge of the matter said.

The Indian conglomerate aims to sign a binding deal in the next two weeks to sell 49 percent of Essar Oil Ltd. to Rosneft, according to the people, who asked not to be identified because the information is private. Trafigura is also in advanced talks to buy a minority stake in Essar Oil, the people said. The suitors have been discussing a valuation of about $6.5 billion for Essar Oil, India’s second-largest private refiner, one of the people said. 

The board of Rosneft, which signed a non-binding pact on the potential purchase in July 2015, plans to meet Oct. 13 to approve the transaction, according to the people. Essar is considering eventually selling down most of its remaining interest in the refinery business and may keep only a residual stake of 5 percent or less, the people said.

Russia has been cementing energy ties with India, which is expected to surpass Japan as the world’s third-largest oil user this year and be the fastest-growing crude consumer through 2040, according to International Energy Agency estimates. A conclusion to the sale would help Essar Group, which has been grappling with debt after an $18 billion spending spree, generate funds to repay lenders. 

“Global players want to bet heavily on the Indian market because India has a huge population as well as rising income,” Jagannadham Thunuguntla, head of fundamental research at Hyderabad-based Karvy Stock Broking Ltd., said by phone Friday. “Its energy needs are growing rapidly both at the consumer level and industry level.”

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Final terms of the deal are currently being negotiated and an agreement could still be delayed, according to the people. Representatives for Essar, Rosneft and Trafigura declined to comment.

Oil and gas companies globally have struck $132 billion of deals this year, down from $196 billion during the same period in 2015, according to data compiled by Bloomberg. A group of state-owned Indian energy companies are investing $5.5 billion to buy stakes in Rosneft’s Vankor and Taas-Yuryakh fields.

Essar Oil runs the Vadinar refinery in the western state of Gujarat, which can process about 400,000 barrels a day. Most of the refinery’s output is sold locally, either through its own outlets or to government-owned fuel retailers. In July last year, Rosneft signed a pact to supply Essar Oil about 200,000 barrels of crude per day over 10 years.

The deal being discussed includes the refinery as well as the Vadinar port and more than 2,000 retail gas stations, according to the people. The initial transaction won’t include a power plant serving the refinery, which could be transferred later after getting necessary approvals, the people said. 

--With assistance from Debjit Chakraborty and Stephen Bierman To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net, Saket Sundria in Mumbai at ssundria@bloomberg.net, Javier Blas in London at jblas3@bloomberg.net. To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, James Herron at jherron9@bloomberg.net, Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Will Kennedy at wkennedy3@bloomberg.net, Timothy Sifert