Debts slowing down Rosneft acquisition of Essar Oil; Project worth $12.9 billion

Real tensions

Rosneft  is currently combating to induce its huge acquisition worth $12.9 billion. Story is about India’s Essar Oil Ltd, the very important purchase for Rosneft company. The ”combat” is happening because some of the Essar’s financiers did not yet endorse the deal. Firstly, the main creditors and financial institutions, along with some state-run banks are the ones delaying the project. They carry approximately $500 million of Essar’s debt.

“Tensions between Rosneft and Essar are running high.”

Secondly, there are currently more than a few sources discussing on this subject. Thirdly, part of Rosneft is controlled by Kremlin officials, and they consider this arrangement substantial for the expansion in Asia’s energy market. They aimed to close this deal before. In period of late 2016. Following, even June as aim for finishing these deals, seems unstable.

Acquisition

However, the Rosneft officials expect the acquisition to go through. Some of the sources are saying that Rosneft sent some threatening viewpoints to Essar.  Stating they will pay the minor price, if the odds about these debts extend.

“We are working on obtaining the approvals. We are hopeful that the deal will be completed in the upcoming few weeks.” (Essar spokesman said) (Reuters)

Furthermore, at a Wednesday conference, Pavel Fedorov – Rosneft Chief Financial Officer, said ”I do not expect the purchase to finish by the end of June this year.”

Fourthly, there are six institutions holding up the transaction. They are: IDBI Bank, Punjab National Bank, Syndicate Bank, Indian Overseas Bank, Life Insurance Corp of India and non-bank financier IFCI Ltd.

Another industry source

Different point of view:

”Rosneft wanted to finalize this deal in early June. At the St Petersburg Economic Forum, where Indian Prime Minister Narendra Modi will meet Vladimir Putin. Despite being the previous idea, it had now pretty dwindled.

In competition to buy Essar, it was Saudi Aramco against The Russian Rosneft. The two of these are main competitors in global oil exports market.

Deal will give Rosneft a 49 percent stake. The second 49 percent will be divided between Swiss commodities trader Trafigura [TRAFGF.UL] and Russian fund United Capital Partners. The billionaire Ruia brothers will retain a 2 percent stake. VTB bank of Russia advises this transaction.

“The process of closing the deal is in its final stages. And will come to a conclusion soon.”  Spokesman for Trafigura said, while UCP declined to comment. (Reuters)

Resolving the Bad Debts

Also, this deal is diligent for Modi’s government. It will clear India’s $150 billion in bad debt.

Noteworthy, Essar Oil India owed about $5.5 billion to almost 30 Indian lenders. Other institutions besides these 6, have approved the transfer.

Observing into these six institutions which are blocking the deal, Syndicate Bank was expected to clear the deal in 10 – 15 days.  Finishing, Indian Overseas Bank source said that they are working on no-objection confirmation.

”Debt talks”

In conclusion, debt talks were complicated due to some lenders to whom Essar’s parent still ows money. The parent company is Essar Global Fund Ltd.

“Essar Global Fund planned to use the proceeds to clear half of the group’s debt, which CEO Prashant Ruia has put at about $13.5 billion. “