Russian oil giant PJSC Rosneft Oil Company is in early talks with Reliance Industries for sale of its 49.13 per cent stake in Nayara Energy, which operates a 20-million tonnes-a-year oil refinery and 6,750 petrol pumps in India, sources said.
Photograph: Dado Ruvic/Reuters
Reliance has held preliminary talks for acquisition of Nayara, which will help it overtake state-owned Indian Oil Corporation (IOC) to become India’s No.1 oil refiner as well as give a meaningful presence in the fuel marketing space.
But the talks are at preliminary stage and there is no guarantee that they may lead to a definite deal as valuation remains a sticky ground, three sources with direct knowledge of the matter said.
Top Rosneft officials have visited India at least thrice in the last one year, including visits to Ahmedabad and Mumbai, for talks with potential investors.
For Rosneft, which is looking to exit from Nayara due to western sanctions limiting its ability to repatriate full earnings from India operations, a potential buyer could be one who has substantial earnings overseas or is an international company – both of which could make quick overseas payouts for the stake.
Being a large exporter of fuel, Reliance has substantial overseas income, the sources said.
While emails sent to Rosneft for comments remained unanswered, a Reliance spokesperson said, “As a policy, we do not comment on media speculation and rumours.”
“Our company evaluates various opportunities on an ongoing basis,” the spokesperson said.
“We have made and will continue to make necessary disclosures in compliance with our obligations under Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 and our agreements with the stock exchanges.”
Rosneft, which had in 2017 acquired Essar Oil in a $12.9-billion deal, is unable to get full financial benefits from its Indian operations, including repatriating earnings, due to international sanctions. Essar Oil was subsequently named Nayara Energy.
The Russian giant sometime in 2024 decided to exit Nayara and began scouting for potential buyers.
Alongside Rosneft, UCP Investment Group, a major Russian financial firm, is also selling its 24.5 per cent stake in Nayara.
The rest of Nayara’s ownership includes Trafigura Group (24.5 per cent) and a group of retail shareholders.
If a deal is struck, Trafigura too may exit the venture within months on same terms, they said.
The stake of Rosneft and UCP was offered to Reliance Industries, Adani Group, Saudi Aramco and state-owned ONGC/IOC combine among others.
But the $20-billion valuation that Rosneft had put for Nayara was considered too steep a price by almost every potential investor.
Adani Group politely declined the offer to invest in an oil refinery, which is considered a sunset business given the energy transition planned worldwide.
Besides the asking price being too high, the conglomerate’s understanding with French energy giant TotalEnergies, with whom it has stitched multi-billion dollar partnership in city gas and renewable energy space, also came in the way of investing in Nayara, the sources said, adding Adani had in its deal with TotalEnergies agreed to limit future investments in fossil fuel space to only natural gas.
Sources said Saudi Aramco is a serious contender to take over Nayara as it will fulfil its long-desired ambition of having downstream presence in the world’s fastest growing oil market.
Aramco, the world’s largest oil exporter, had previously agreed to invest in a giant oil refinery-cum-petrochemical complex that state-owned firms had planned to build in Maharashtra, but that project hasn’t taken off due to land acquisition delays.
It had in 2019 signed a non-binding agreement to buy a 20 per cent stake in Reliance’s oil-to-chemical (O2C) business for $15 billion but the deal was called off two years later over valuation issues.
Sources said Aramco too considers the $20 billion valuation too high.
It wasn’t known if talks between Rosneft and Aramco have progressed beyond initial contact.
Nayara makes the most sense for Reliance, they said. Reliance operates twin refineries, with a combined capacity of 68.2 million tonnes per annum at Jamnagar in Gujarat.
Its units are in the vicinity of Nayara’s 20-million tonnes-a-year unit at Vadinar, Gujarat.
Nayara will help it cross IOC’s 80.8-million tonnes-a-year capacity to become No.1 refiner in the country.
But more importantly, the 6,750 petrol pumps of Nayara would help it gain a meaningful share in the fuel retailing business.
Reliance has just 1,972 petrol pumps out of 97,366 outlets in the country.
“Oil refining alone is not a profitable business. Unless you have marketing, you can never make money,” an industry official explained.
Sources said for both Oil and Natural Gas Corporation (ONGC) and IOC, the valuation being sought by Rosneft is too high.
For them the value of petrol pumps should not be more than Rs 3-3.5 crore per outlet.
This gives a valuation of not more than $2.5-3 billion for the marketing network and similar value is what they see for the oil refinery, they said.
But for Reliance, the value of the marketing network is more, perhaps Rs 7 crore per outlet ($5.5 billion).
And given the synergies the combined operations of Jamnagar and Vadinar refineries can derive, the 20-million tonnes Nayara unit and its planned petchem unit could be worth another $5 billion, they said.
Sources said since the start of talks, Rosneft has brought down the valuation to $17 billion but that too is considered too high by companies such as Reliance.
However, no official deal has been confirmed, and Rosneft has not made a formal statement on the matter yet.
