Essar said to be in talks with Aramco for stake sale in refinery business

Mumbai/London: Essar Group, controlled by India’s billionaire Ruia brothers, has held preliminary discussions with Saudi Arabian Oil Co. about selling a stake in its refinery business, people with knowledge of the matter said.

Exploratory talks began last month between Saudi Aramco and the Indian conglomerate about a stake in Essar Oil Ltd, which has a market value of about $5.5 billion, according to the people. Essar Group officials discussed a potential deal during a meeting with Aramco executives at the World Economic Forum (WEF) in Davos, two of the people said, asking not to be identified as the information is private.

Essar Group is selling assets after earnings were hurt by a fall in commodity prices, weak demand and lower capacity usage at its businesses. Saudi Aramco, the world’s biggest oil producer, is moving beyond producing and exporting crude and expanding into the processing and sale of oil products, which can fetch higher prices on world markets.

Shashi and Ravi Ruia, who founded Essar Group, plan to pay off some of the conglomerate’s loans with the proceeds from selling the refinery unit stake, the people said. Essar Group had been seeking about $3 billion from a sale of a 49% stake in the unit to Rosneft, the people said.

Backup buyer

Discussions with Aramco are at an early stage, and there’s no certainty the Saudi oil producer will proceed further in the negotiations, according to the people. Essar Group is still in talks with Rosneft, and the Russian company is likely to complete due diligence in the next month, one of the people said.

Rosneft signed a non-binding agreement in July to buy 49% of Essar Oil, conditional on due diligence and negotiations on price. Essar Group entered talks with Aramco in order to have an alternative buyer in case the discussions with Rosneft fall through, according to two of the people.

Essar Group and Aramco declined to comment in e-mailed statements.

“Rosneft has not changed its plans and continues work in accordance with the signed agreement on terms for the company’s possible entry into shareholding structure of Essar Oil,” the Russian company’s press office said in an e-mailed statement. “Talks on this project continue on the working group level in accordance with the existing agreement on exclusivity.”

Saudi Aramco plans to boost its total refining capacity to between 8 million and 10 million barrels a day by the end of the decade from about 5.4 million currently. The state-owned company is maintaining investments in oil and gas projects amid the fall in crude prices, chairman Khalid Al-Falih said last month, and is also studying options including the sale of shares in the parent company and downstream refining and chemical operations. Bloomberg