India's Essar Oil to sign $1 billion debt-for-fuel deal with China

India's Essar Oil Ltd will sign a $1 billion loan deal with China backed by supply of refined products to top state oil producer PetroChina.

Essar Oil could sign a preliminary agreement with China Development Bank (CDB) to borrow that amount during Chinese Prime Minister Li Keqiang's visit to Mumbai, his first foreign trip.

The Indian firm, controlled by billionaire brothers Shashi and Ravi Ruia, has been replacing its rupee debt with lower-cost, overseas loans and has so far refinanced $481 million.

The group hopes to refinance another $1.8 billion within the next three to six months.

Details on pricing of the products and how shipments would be credited against the loan still need to be worked out, the sources said.

The deal could also signal a long-term tie-up on crude supplies, with Essar looking to take ultra-heavy Latin American crude from PetroChina.

Crude oil producers in Latin America have been scouting for new buyers in Asia as the U.S. shale oil and gas boom has reduced demand for their heavy and ultra heavy crudes.