Essar Group, the parent company of Essar Oil, have said in a statement over the weekend that the sale of the Indian giant’s oil subsidiary to Russia’s Roseneft does not go against sanctions imposed on Russian companies by the United States.
This is India’s biggest ever foreign takeover and also Russia’s largest deal outside of their homeland.
According to Essar’s CEO Prashant Ruia, the Roseneft deal is “totally compliant with U.S. sanctions”, and revealed that commodities traders Trafigura and private equity firm United Capital Partners will also have significant stakes in Essar’s oil operations.
Since Russia instigated the Ukraine incursion several world leaders condemned the action and the U.S. imposed tight restrictions on Russian companies active abroad. But Ruia said no aspect of the deal broke any of those rules.
Essar has been under severe pressure from shareholders and lenders to bring their debt levels down after low oil prices hit the company profits hard over the last few years. The group, controlled by the billionaire Ruia brothers, also has interests in power, ports and the steel industry.
“After many months of hard thinking we eventually decided to sell the oil asset,” said Ruia in a BBC news interview. “It was extremely difficult to let go, especially considering the many years of hard work put into the company from all the executives and other employees, a very emotional farewell.”
Upon completion of the deal Essar will use the proceeds to cut its debt in half, the statement said, which would amount to some $7 billion in total debt reduction. The rest of the funds would be used to re-manage other debts at an operational level.
“There will be some cash left over to plough money into the existing business interests,” said William Harper, Head of Global Mergers and Acquisitions at CTI China Renaissance in a phone interview. “According to the board the company won’t sell any more aspects of their major operations. It’s also unlikely that they will de-list them to wrestle extra leverage over the finances.”
The capital inflow will be a good chance for the Ruia brothers to restructure the obligations of its Essar Steel Company in Gujarat which is overburdened with more than $6 billion of outstanding debt.
