Reliance may soon become the top oil refiner in India
What's the story
Russian oil giant Rosneft is in preliminary talks with Reliance Industries to sell its 49.13% stake in Nayara Energy, sources familiar with the matter told ET. Nayara operates a 20-million ton-per-year refinery and runs 6,750 petrol pumps across India. The deal could make Reliance India's top oil refiner, surpassing state-owned Indian Oil Corporation (IOC), and give it a strong foothold in fuel marketing.
Sanction impact
Why Rosneft is looking to exit Nayara
The talks come as Rosneft looks to exit Nayara due to Western sanctions that restrict its ability to repatriate full earnings from India operations. The company is seeking a buyer with significant overseas earnings or an international firm capable of quick overseas payouts for the stake. Reliance, being a major operator, fits this profile with its substantial overseas income.
Company statement
Here's what Reliance had to say
When asked about the potential acquisition of Nayara, a Reliance spokesperson said, "As a policy, we do not comment on media speculation and rumors." However, they did add that "Our company evaluates various opportunities on an ongoing basis." The spokesperson also assured that any necessary disclosures will be made in compliance with their obligations under SEBI regulations and agreements with stock exchanges.
Operational hurdles
Rosneft acquired Essar Oil in a $12.9B deal
Rosneft acquired Essar Oil in a $12.9-billion deal in 2017, which was later renamed Nayara Energy. However, the company has been unable to reap full financial benefits from its Indian operations due to international sanctions. These restrictions have also hindered Rosneft's ability to repatriate earnings from these operations. The Russian giant plans to exit Nayara and is looking for potential buyers.
Stake distribution
UCP also selling its 24.5% stake in Nayara
Along with Rosneft, UCP Investment Group, a leading Russian financial firm, is also selling its 24.5% stake in Nayara. The remaining ownership of Nayara is held by Trafigura Group (24.5%) and a group of retail shareholders. Potential buyers for the stakes include Reliance Industries, Adani Group, Saudi Aramco, and state-owned ONGC/IOC combine among others.
Deal hurdles
Saudi Aramco is a serious contender for Nayara
The $20-billion valuation that Rosneft had put for Nayara was considered too steep by most potential investors. Adani Group declined the offer due to its understanding with French energy giant TotalEnergies, which limits future investments in fossil fuels to natural gas only. Saudi Aramco is a serious contender for Nayara but also considers the $20 billion valuation too high.