Essar Oil is looking to raise over $1 billion from trading houses after its new Russian owners could not raise loans from major Western banks due to sanctions on Russia.
Essar wants to borrow the money for 3-4 years and repay it with cargoes of refined products as it seeks to cut its reliance on lending from Indian banks, banking and trading sources familiar with the discussions said.
It would be the first large multi-year pre-payment deal by Essar, which has previously engaged only in short-term deals.
Russian oil major Rosneft, fund UCP and Swiss commodities trader Trafigura bought Essar Oil’s large refinery, 3,500 fuel stations and infrastructure for $12.9 billion last year.
Kremlin-owned Rosneft has been under U.S. sanctions since Russia’s annexation of Crimea in 2014.
The Essar deal was funded mainly by Russian state banks, including sanction-hit VTB, and the new owners’ attempts to partially borrow from large Western banks have so far not progressed.
Banks are not technically forbidden from lending to Essar, in which Rosneft owns 49 percent. Sanctions forbid lending to entities majority-owned by Rosneft but banking sources have said they would still exercise caution.
“Essar and Rosneft initially signalled interest in borrowing but have gone silent in the past six months after most banks signalled to them they would not be able to lend,” said a source with a major Western bank, which initially received an invitation to express interest.
The new shareholders are keen to diversify their financing base away from relying only on Indian banks as had been the case under the Ruia family who were the former owners, one of the banking sources said.
A spokesman for Essar Oil declined to comment.