India-focused Essar Energy plans to refinance up to $1.5 billion of its rupee debt within a couple of quarters, as it focuses on improving its balance sheet after a turbulent period that included heavy capital expenditure and regulatory setbacks.
The London-listed company missed its 2011 earnings forecast, put some of its India power projects on hold due to delays in coal mining approvals, and lost a court case for a tax break in its majority-owned Essar Oil unit.
Earlier this year, its shares fell to as low as a quarter of their 2010 listing price of 420 pence, and are down by four-fifths from a peak in December 2010.
The focus has now completely shifted to asset optimisation, and to ensure we start generating the cash flows and income envisaged at the time of investment decisions, Chief Executive Officer Naresh Nayyar told Reuters in an interview.
The second focus is to improve the overall health of our balance sheet. We have just completed a massive capex program, we are very highly geared.
Essar Energy -- 77 percent-owned by privately held Indian conglomerate Essar Group, controlled by billionaire brothers Shashi and Ravi Ruia -- had net debt of $5.8 billion at the end of June, mainly from boosting its India refinery capacity by a third and to fund power projects there.
The company is facing delays in environmental approvals for coal mining and shortages in coal supply, forcing it to delay three of its coal-fired projects, but Nayyar said he was confident of producing 6,700 megawatts by a March 2014 target.
This is a temporary setback. Once we start getting the coal this business will start generating strong cash flows.
Essar Energy currently operates six power plants in India and another in Canada with a total capacity of around 3055 MW.
STAKE SALE OFF, REFINANCING ON
Essar Energy has shelved plans to sell about 15 percent of unit Essar Oil, Nayyar said, after a recent clarification by the markets regulator that depositary receipts would not be included to comply with a minimum 25 percent public shareholding rule.
The latest interpretation is if they don't include Global Depositary Receipts (GDRs), we have sufficient public shareholding, so no further dilution is required, Nayyar said.
He said Essar also did not require funds at present as Essar Oil had tied up a loan facility to help settle a large sales tax liability in India.
Navyar said the plan to refinance $1.5 billion in debt would nearly halve