Trafigura Group is in talks to acquire a minority stake in Essar Oil, India’s second-largest private refiner, in a deal that could value the business at about $6.5bn, people with knowledge of the matter said.
The Singapore-based commodities trader is discussing the purchase of at least a 15% stake in Essar Oil, which runs the 405,000 barrel-a-day Vadinar refinery, according to the people. Essar Oil’s owners, the billionaire Ruia brothers, aim to reach an agreement by next month, two of the people said, asking not to be identified as the information is private.
A successful deal would give Trafigura access to India’s fast-growing oil market, where demand for petroleum products is rising rapidly as the economy expands. Trafigura would join Russian state oil producer OAO Rosneft, which signed a non-binding agreement in March to purchase a 49% stake in Mumbai-based Essar Oil.
The International Energy Agency said in June that India is “the world’s growth leader” in oil consumption, with the country’s demand projected to exceed that of Japan this year. Essar Oil’s planned stake sale to Rosneft follows a deal in July 2015 that would see the Russian producer supply the refinery with 200,000 barrels of crude per day over 10 years. The Ruias are willing to sell a maximum stake of about 30% of Essar Oil to Trafigura, according to three of the people. The billionaire brothers will use the proceeds from the refinery stake sales to pay back bank loans, four people said.
As part of the deal, Trafigura could also get a stake in Essar’s more than 2,000 retail fuel stations, a power plant and the Vadinar port, three of the people said. Trafigura’s main interest is the Vadinar refinery, according to one person.
Details haven’t been finalised, and the talks could still fall apart before a firm agreement is reached, one of the people said. A representative for Trafigura declined to comment. Essar said in an e-mailed statement that the Rosneft transaction is at an “advanced stage,” declining to comment on any further stake sale.
Trafigura has close ties to Rosneft, handling much of the crude exported by the Russian producer. The increase in business with Rosneft has propelled Trafigura to the position of the world’s second-biggest independent oil trader, handling more than 4mn barrels a day.
The deal would be part of a wider push to cement energy ties between Russia and India. In March, Rosneft agreed to sell a $1.3bn stake in Siberian oil fields to a group of India oil producers.