Essar offers Russia's Rosneft 50% stake minus 1 share in oil arm, eyes company's valuation to hit Rs 48k crore

MUMBAI: Months after signing a strategic crude sourcing agreement with Russian energy giant OAO Rosneft, Essar, the steel-to-BPO conglomerate is now pitching for a deeper equity alliance that may lead to the Russian firm buying a stake in Essar Oil.
As part of the plan that is under discussion, Essar, controlled Shashi Ruia and his brother Ravi, has offered a strategic stake of 50% minus 1 share in Essar Oil, to Rosneft, the world's largest oil company.
Listed in India, Essar OilBSE 1.94 % Ltd is the oil and gas arm of the $35 billion diversified Essar Group, owns the country's 2nd largest private oil refinery. Multiple sources aware of the ongoing discussions say Essar is expecting the company to be valued at $7-$8 billion (Rs 42,000-Rs 48,000 crore) for its equity value.
The sources mentioned above say Rosneft may pay partly in cash and partly as crude supply at a significant discount. Essar will have the trading right to swap the crude. The financial terms and the structuring details are still being fleshed out. Last week, a senior team from Rosneft, was in India to meet their counterparts in Essar to take the discussions forward. According to one of the sources, subsequent meetings are due in London early next month.
A person close to Essar confirmed meetings with Rosneft but said it was part of an audit for credit lines for crude sourcing. "It is not our policy to comment on market speculations. However, as earlier disclosed in December 2014, Rosneft and Essar Oil have executed key terms of the crude oil / products supply contract, the details of which are being worked out," an Essar spokesperson told ET. Mails sent to Rosneft on Monday night went unanswered till the time of going to press on Tuesday.
It is not yet known if Rosneft will agree to the hefty premium sought by Essar which is almost three times its current market cap of Rs 15, 720 crore. As on September 2014, the Ruia-promoted firm also has $3.6 billion (Rs 22,171 crore) of debt.
Oil diplomacy:
Analysts say Rosneft is also facing a raft of problems. To cope with the collapse in crude prices that went to historic lows, it is cutting capex plan for this year by a savage 30% from 2014's estimated $14-$16 billion. It follows cuts announced recently by other major firms around the world totalling $65 billion.