Essar Shares Plunge After Initial Euphoria on Rosneft Accord

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Essar Oil Ltd., India’s second-biggest non-state refiner, reversed gains as investor interest subsided over OAO Rosneft’s accord to buy a stake in the company and supply crude oil for a decade.

The shares fell 5.6 percent to 178.25 rupees at the close in Mumbai, having risen as much as 5.1 percent during the day. Essar Oil, backed by billionaire brothers Shashikant and Ravikant Ruia, has gained 67 percent this year.

The decline in the shares was also a result of delisting concerns, said Deven Choksey, managing director at KR Choksey Shares & Securities Pvt.

“The stock has already risen considerably on the likelihood of the deal and today’s upward movement was a kneejerk reaction,” Choksey said by phone. “The gain is unlikely to sustain, as investors are aware of the plans to delist the company. The downward movement looks more rational.”

Essar Oil is seeking various approvals to delist its shares from Indian exchanges, a move that would allow the Ruia brothers greater flexibility and less regulatory scrutiny while selling a stake in the refinery.

The company is said to have received consent to delist its shares from the National Stock Exchange of India Ltd., while approval from BSE Ltd. is awaited, according to people familiar with the matter.

Rosneft signed a deal on Wednesday to supply 10 million metric tons of crude a year, or 200,000 barrels a day, to Essar’s Vadinar refinery in the western state of Gujarat, and a non-binding memorandum to buy a 49 percent stake in the company, Essar said in a statement Thursday.

State-run Rosneft is turning toward Asian markets at a time when Russia’s relations with the West are at their lowest since the Cold War due to the conflict in Ukraine. Russia surpassed Saudi Arabia in May as China’s leading crude supplier and Rosneft plans to boost exports to Asia by 30 percent this year.

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