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Rosneft and Trafigura to acquire 98% in Essar Oil

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Hydrocarbon Engineering,

Rosneft and Trafigura announced they have signed agreements to acquire 98% in Essar Oil for its refining and retail assets, Vadinar port and related infrastructure.

Essar Energy Holdings Limited and Oil Bidco (Mauritius) Limited — companies incorporated and managed under the laws of Mauritius — the controlling shareholders of Essar Oil Limited (EOL) have entered into separate definitive agreements for the sale of 98% of EOL. The first sale and purchase agreement envisages the sale of 49% to Petrol Complex Pte. Ltd (a subsidiary of PJSC Rosneft Oil Company); the second envisages the sale of the remaining 49% to Kesani Enterprises Company Limited (owned by a consortium led by Trafigura) at an enterprise valuation of Rs 72 800 crore (US$10.9 billion) (the transaction). An additional Rs 13 300 crore (US$2 billion) will be paid for the acquisition of Vadinar Port, which has storage and import/export facilities.

The business transaction was announced in the august presence of Mr Narendra Modi, Honourable Prime Minister of India, and Mr Vladimir Putin, Honourable President of the Russian Federation, at the BRICS Summit in Goa (India). The all cash deal encompasses EOL’s 20 million t refinery in Gujarat, India, and its pan-India retail outlets. The closing of the transaction is conditional upon receiving requisite regulatory approvals and other customary conditions. The parties expect to obtain the relevant approvals before the end of this year.

Investing in EOL, which operates one of the world’s most complex refineries and runs India’s largest private sector retail network, gives the new stakeholders a strong foothold in the Indian market that will witness robust demand growth for petroleum products in the long term. The growth for refined petroleum products in the Indian market for the next five years is expected to be in the 5 - 7% range.

EOL’s value has also been strengthened by the integrated nature of its business and the strategic positioning of its assets. Its 20 million t oil refinery in Vadinar, which accounts for 9% of India’s total refining output, is supported by a 1010 MW captive power plant, and complemented by a network of around 2700 operating retail outlets. The additional Rs 13 300 crore that the new stakeholders have agreed to pay is for the 58 million t deep draft port in Vadinar that helps in importing crude and exporting finished products.

The transaction is the single largest tranche of foreign direct investment (FDI) in India, and re-establishes the image of India as an attractive destination for foreign investments.

Prashant Ruia, Director, and Essar, said, “We have once again reinforced our unique expertise in project incubation, execution, value creation and monetisation. We have established world class assets that have attracted the attention of leading global companies and investors. The deals we have done have led to an FDI infusion of more than US$30 billion into India.”

Igor Sechin, CEO, Rosneft, said, “This is a significant milestone for the Company. Rosneft is entering one of the most promising and fast growing world markets. At the same time, this project provides unique opportunities for synergies with the existing assets of the company and is consistent with Rosneft's enhanced presence in the fast growing markets of other APR countries, such as Indonesia, Vietnam and the Philippines.”

Jeremy Weir, Chief Executive Officer of Trafigura, said, “This is an important and exciting investment. Essar Oil occupies a strategic position in the global oil market and owns world class refining and infrastructure assets that will create multiple synergies with our trading business.”

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