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Essar - Roseneft Multi Billion Deal on the Cards: Gain for Lenders, Big Loss for Shareholders

News

The Essar Group and Russia’s OAO Rosneft are discussing the financial terms of their multi-billion deal-in-the-making. On 8 July, Rosneft, Essar Oil and Gas Ltd and Essar Energy Holdings Ltd signed a non-binding term sheet with regard to the deal that will give Essar Oil Ltd access to Rosneft’s crude output, and the Russian firm, in return, a toehold in the Indian refining and retail market

Source:  ET

SNP Insights

With the multi billion deal between Essar & Roseneft, Indian oil major, may get significant cash to reduce its debt burden & strengthen its balance sheet. As per agreement, Essar can get access to Roseneft’s crude output which will secure Essar crude supply, for multiple years.

Securing cash & crude both, this deal seems to be a big gain for lenders of the company, yet company’s move to delist the shares, will result in only 4.44 times appreciation of share value in last 10 years, while revenue growth is 130 times during the same period. It is very much essential for the regulators to go deep into the statistics & amend the present ‘reverse book building’ procedure  if needed to ensure fair return for share holder, unless public investment in share of the company may distort.

Source: SNP Infra Research