Why Russian Company Rosneft Took Over Indian Essar Oil?

In a recent spate (Russia ties with Pakistan and China) that was described as alarming, here comes a shocking news, at least for the common masses, if not for PM. Russian Company Rosneft is all set to claim a huge stake in India’s privately held oil firm Essar Group. Let’s get into the details:-

The Ruias, Essar Oil announced the completion of the deal with the Russian government- owned Rosneft company and a consortium led by the commodities trader Trafigura and an investment group United Capital partners. With this deal, the company plans to transfer 98% of its assets to an oil company at Rs 72,800 crore.

Mathematics behind the deal

According to the sources, it is believed that this investment would cost 12.5 times EBITDA (Earnings before Interest Tax, Depreciation and Amortization) to Rosneft, which is far better than Reliance.

Why is the company planning to pay a premium amount?

Amidst the cut throat competition, the company is planning to pay a premium amount because Essar offers decent growth opportunities. Plus, it is located in a close proximity to Vadinar port, which lends a great efficiency to its operations. It is believed that the company will support the group by providing cheap crude oil from Venezuela and trading partner Trafigura will help to sell the products in Asia-Pacific region.

How this deal will affect the banking sector?

This deal will bask a bullish glow in the banking sector. It will reduce the debt of worth Rs 70,000 crore towards its lenders SBI, ICICI bank, Axis Bank and IDBI bank.

What effect it will have on the Indian companies?

The local oil marketers will face a big threat depending upon how aggressive their plans are.

Will this business deal boost our relationship with Russia or is it a threat to our domestic industries?

Though Russia has put all the speculations to rest by signing this deal, the ground reality is different Russia has already made a choice in favor of Pakistan.