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StanChart extends $1 bn credit line to Essar Oil

9 Dec 2009, 0312 hrs IST, Mohit Bhalla & Dev Chatterjee, ET Now

Standard Chartered Bank has extended a $1-billion (Rs 4,600 crore) line of credit to Essar Oil to part-finance its acquisition of Royal Dutch Shell’s refinery assets in Europe, a senior banker told ET NOW, as the Indian company moves closer to sealing a deal estimated to be worth over $2 billion.

Essar’s senior management team, including promoter-director Prashant Ruia, were in London recently giving finishing touches to the transaction to buy Shell’s Heide and Harburg refineries in Germany and the Stanlow refinery in the United Kingdom, a top company executive said.

“The two sides are currently discussing human resources-related issues and Essar’s management has also had discussions with the labour unions to ensure that the integration process post the acquisition is seamless. The deal will be finalised by the end of this month,” the executive said. Representatives of Essar and Shell declined to comment.

Labour unions at Shell’s British refinery want assurances from Essar that their pension liabilities will be adequately protected once the Indian company wins ownership. The executive added that the acquisition will be an all-cash transaction after the Anglo-Dutch company did not show interest in an offer of a 10% stake in Essar Oil as part payment.

Essar and Royal Dutch Shell were in exclusive negotiations for the refineries until November 30, when they announced an indefinite extension of talks.

Apart from buying Shell’s refineries, the Essar Group is also exploring the possibility of setting up its own retail network in Europe if it gets the right acquisition opportunity. The refineries in Germany have an aggregate refining capacity of around 200,000 barrels per day, while the Stanlow refinery in the UK has a capacity to produce 272,000 barrels per day.

Shell has said it plans to sell aroun 15% of its global refining capacity, or around 6,00,000 barrels per day, as part of a restructuring exercise. Tight margins and falling fuel demand have prompted many big oil companies to offload European and US refineries. Refining profitability, in particular, has taken a knock in the global downturn.

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