All questions refer to the proposed acquisition of Essar Oil by the consortium including Rosneft and Trafigura. You can find information on the deal here: http://www.ship2shore.it/en/energy/essar-oil-limited-sold-by-pieces_62671.htm
https://www.economist.com/business/2017/06/29/what-rosnefts-purchase-of-essars-oil-refinery-means
Question 1 (30 Marks)
Why does the consortium want to finance the deal with non-recourse debt? What are the disadvantages of non-recourse debt? Suggest one alternative option and discuss the potential benefits and costs. Sketch an outline how you would calculate these?
Question 2 (30 marks)
Comment on the ownership structure of Essar Oil after the deal. Are voting power and cash flow rights distributed equally? Imagine that the Essar Holding would like the ports owned by Essar Oil to charge lower prices to Essar Steel. Would they be likely to get these preferable conditions? What would be ways to mitigate any risks associated to such potential conflicts of interest?
Question 3 (40 marks)
Compare the EBITDA-multiples of Essar, Rosneft, and Trafigura in light of the deal. Using a discount rate of 10%, what do the multiples theoretically imply about the growth potential of these firms? What are the caveats to such an interpretation? How would you calculate a more appropriate discount rate?
