Essar Group
Employees walk past an Essar Group logo outside their headquarters in Mumbai May 20, 2013.Reuters

Breaking the deadlock over acquiring a major stake in Essar Oil, Russian oil giant Rosneft has signed a deal to buy 49% stake in its oil refinery at Vadinar, Gujarat.

Reacting to the reports, share prices of Essar Oil rose more than 5% on Thursday to touch ₹198.35 on the Bombay Stock Exchange (BSE). However, Essar Oil stock prices gave up most of the gains to trade at ₹190.15 later on.

Rosneft also hinted at raising the capacity of Vadinar refinery to 45 million tonnes (900,000 barrels per day) by 2020, NDTV Profit reported. Currently, the refinery has a capacity of 20 million tonnes per annum. Essar Oil earns more than 95% of its revenues from refining business and also runs 1,600 petrol pumps across the country.

The private oil company imports a majority of oil for its refinery from Iran and is expected to curtail such imports to give way to Russian oil.

In December last year, Rosneft -- the state-owned enterprise of Russia -- had signed an agreement to export 10 million tonnes of crude oil annually to Essar Group for 10 years.

However, the deal size is yet to be revealed. Last month, Reuters reported that the deal had hit a deadlock due to differences over the valuation of the deal.

Essar Oil is looking for a valuation of $8 billion for its business, according to a Livemint report.

Mounting debt has compelled the diversified Essar Group to sell stakes in some of its units. Essar promoters hold a stake of 90.5% in Essar Oil.

Overall, share prices of Essar Oil soared nearly 80% so far this year.