October 15, 2016 / 3:42 PM / 9 months ago

Russia's VTB head: Rosneft-Essar deal not subject to sanctions

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Andrei Kostin, chief executive of VTB, attends a session of the annual VTB Capital "Russia Calling!" Investment Forum in Moscow, Russia, October 13, 2016.Sergei Karpukhin

GOA, India (Reuters) - A deal in which a group led by Russian oil major Rosneft will acquire India's Essar Oil has been specially structured to avoid falling foul of Western sanctions, Andrey Kostin, head of Russian lender VTB, told Reuters on Saturday.

India's debt-laden Essar Group confirmed on Saturday it had agreed to sell a 98 percent interest in its Essar Oil unit to the consortium led by Rosneft, giving the Russian energy giant a gateway into the world's fastest-growing fuel market. VTB acted as Essar's adviser on the deal.

Speaking to Reuters in an interview on the sidelines of talks between Russian President Vladimir Putin and Indian Prime Minister Narendra Modi, Kostin said the purchase would not violate Western sanctions over Russia's role in the Ukraine crisis because Rosneft will only acquire a 49 percent stake.

"Rosneft will not get a controlling stake, partly because of these reasons (sanctions)", he said.

(L-R) Andrei Kostin, chief executive of Russia's bank VTB, Igor Sechin, chief executive of Russia's top oil producer Rosneft, and Ravi Ruia, vice chairman of Essar Group, attend an exchange of agreements event after the India-Russia Annual Summit in Benaulim, in the western state of Goa, India, October 15, 2016. Sputnik/Kremlin/Mikhail Metzel via REUTERS

Rosneft's partners Trafigura and Russian fund United Capital Partners (UCP) will acquire the remaining 49 percent. Rosneft will pay around $3.5 billion for its stake, the same amount as Trafigura and UCP.

Kostin said neither Rosneft nor Trafigura had borrowed any money to finance the purchase.

"Trafigura and Rosneft are paying on their own, with no funds lent from VTB", he said. "They (the buyers) will pay with cash, it is a cash deal".

In parallel with the deal, VTB has said it will lend Essar around $3.9 billion for debt reconstruction. Kostin said UCP and Rosneft could consider selling part of their stakes in the future.

"I think UCP, which is a portfolio fund, will ... sell, maybe to firms from this region, from Asia," he said. "(Rosneft)may also sell, but it is likely to hold on. It sees an opportunity to expand in the region."

Reporting by Denis Pinchuk; Editing by Jack Stubbs and Hugh Lawson

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