Essar, IDFC Alternatives reach settlement, paving the way for Rosneft deal


Mumbai: The Essar Group has reached a settlement with private equity fund IDFC Alternatives, ending arbitration proceedings that threatened to block the proposed sale of Essar Power’s Vadinar plant and even delay the $12.9 billion Essar-Rosneft deal.

The settlement ends a dispute that started when IDFC Alternatives’s India Infrastructure Fund (IIF) approached the Delhi high court in 2014 and the arbitration tribunal in the following year, challenging the sale of the Vadinar power plant to Essar Oil.

A spokesperson for IDFC Alternatives confirmed that Essar Group and IIF have settled their dispute and the private equity firm has received “exit proceeds”.

“Essar Group and IIF have reached a settlement in the context of the optionally convertible redeemable preference shares issued by Essar Power to IIF and both parties have withdrawn from arbitration proceedings,” the spokesperson said in response to an emailed query.

An Essar Group spokesperson also said that the two parties have withdrawn from arbitration proceedings.

Though both sides declined to give details of the settlement, two people aware of the negotiations said on condition of anonymity that while IDFC Alternatives had initially demanded close to Rs1,200 core from Essar, the final settlement was reached at around Rs600 crore.

Essar Power had raised Rs350 crore ($52.1 million) from IIF in 2009 through a sale of the optionally convertible redeemable preference shares.

The IDFC fund’s investment agreement allowed it to request a redemption of its holdings if Essar Power sells at least Rs500 crore of assets, Bloomberg reported in August last year citing official documents it had obtained.

Essar Power’s Vadinar plant, located at the Vadinar refinery complex run by Essar Oil, is a captive power and steam co-generation plant that is crucial to the refinery’s operations. The plant is a 120MW refinery residue-based multi-fuel, captive, co-generation plant, with capacity to generate 77 MW of power and 230 tonnes per hour of steam, according to the company’s website.

Essar Oil provides the fuel required at the power plant to generate power and steam for the refinery’s operations. Vadinar Refinery is India’s second largest refinery, accounting for 9% of the country’s refining output. Essar Oil also operates a pan-India network of 2,700 retail outlets.

Earlier this month, Reuters, citing unidentified people close to the deal, reported that the Rosneft-led consortium plans to finally complete the acquisition of Essar Oil by March this year.

The deal was announced in October last year during a visit to India by Russian President Vladimir Putin.

The transaction includes Rs72,800 crore for Essar Oil’s refining and retail assets, and Rs13,300 crore for Vadinar port and related infrastructure. The Reuters report added that the delay was due to the complexity of Essar’s structure and financing, and not due to any issues relating to the buyers, who will buy a 98% stake in Essar Oil.

Apart from Rosneft, the buyers include Singapore-based commodities trading company Trafigura Group Pte and Russian private investment group United Capital Partners.

Mint had reported in October, citing people directly involved in the deal, that the total equity value of the deal is about $6.4 billion and $6.6 billion in assumed debt.