Russian state oil firm Rosneft is struggling to close its $12.9 billion acquisition of India`s Essar Oil Ltd because six of Essar`s Indian creditors have yet to approve the deal, sources close to the talks said.

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The state-run banks and financial institutions that are delaying Rosneft`s biggest foreign acquisition hold about $500 million of Essar`s debt, five industry and banking sources told Reuters.

Kremlin-controlled Rosneft, which sees the deal as vital to expanding in Asia`s fastest growing energy market, had aimed to close the deal at the end of 2016. Now a June target for completion may be in doubt.

"Tensions between Rosneft and Essar are running high," said one of the industry sources, who like others asked not to be named.

The sources said the acquisition was still expected to go through, but one of them said Rosneft had written to Essar threatening to change the terms of the deal, including to pay a lower price, if the dispute over debt was protracted.

"The parties are working towards obtaining the approvals," an Essar spokesman said, without giving details about any delays or the creditors involved. "We are hopeful that the deal will be completed in the upcoming few weeks."

Rosneft Chief Financial Officer Pavel Fedorov told a conference call on Wednesday that the purchase was now expected to be completed by the end of June.

The six institutions holding up the transaction are IDBI Bank, Punjab National Bank, Syndicate Bank, Indian Overseas Bank, Life Insurance Corp of India and non-bank financier IFCI Ltd, the sources said.

The six lenders gave no official comment when contacted by Reuters.

Another industry source said Rosneft had wanted to finalise the deal in early June at the St Petersburg Economic Forum, where Indian Prime Minister Narendra Modi is due to meet Russian President Vladimir Putin. But he said those hopes have now faded.

Rosneft won a bidding war to buy Essar against Saudi Aramco, its biggest competitor in the oil export market.

The deal will give Rosneft a 49 percent stake, with a further 49 percent split between Swiss commodities trader Trafigura and Russian fund United Capital Partners. The billionaire Ruia brothers will retain a 2 percent stake.

Russia`s VTB bank is acting as advisor on the transaction. It declined to comment on the hold up.

"The process of closing the deal is in its final stages and is expected to conclude soon," a spokesman for Trafigura said, while UCP declined to comment.

CLEARING BAD DEBTS

The deal is also valuable for Modi`s government, as it seeks to clear India`s $150 billion in bad debt.

Essar Oil India owed about $5.5 billion to almost 30 Indian lenders. Apart from six, others have approved Essar`s transfer of ownership to Rosneft from its current owners Indian brothers Ravi and Shashi Ruia, banking sources said.

The State Bank of India, the country`s biggest lender, has given its no-objection to the deal, the sources said.

Among the six institutions blocking the deal, Syndicate Bank was expected to clear the deal with its board in 10 to 15 days, one banking source said. A senior source at Indian Overseas Bank said a no-objection certificate was being processed.

The sources said debt talks were complicated by the fact that some lenders were also owed money by Essar`s parent, Essar Global Fund Ltd, or subsidiaries of the conglomerate that has a portfolio ranging from steel to power generation. 

Sources said some lenders might be seeking to gain concessions on other debt with Essar units before giving their approval.

Essar Global Fund has previously said it planned to use the proceeds to clear half of the group`s debt, which CEO Prashant Ruia has put at about $13.5 billion.