Even as Essar Oil gets set to come out of its Rs 9,000-crore corporate debt restructuring (CDR) exercise at the end of this month, the company is planning to take another bold step — by taking on additional debt on its books.
To pay off its Rs 6,300-crore sales tax burden to the Gujarat government, Essar Oil is in advance negotiations with the State Bank of India (SBI) to arrange for a long-term loan of six years with an average interest rate of 12.5 per cent. If sanctioned, SBI’s exposure in Essar Oil alone will be close to Rs 9,500 crore.
A company official confirmed the development, saying discussions with banks are on to keep a standby arrangement. “We have the option of going to one bank or a consortium of banks, depending on the kind of money we would need for the purpose of repayment schedule,” he added.
On its part, Essar said it was in discussion with the Gujarat government to work out the payment schedule. “We are also in talks with banks to secure loan to support the payment schedule, if required,” a spokesperson of the company told Business Standard in an emailed response.
As of December 2011, the company’s gross debt (long-term) had gone up 20 per cent to Rs 15,297 crore, against Rs 12,718 crore in December 2010. Its net worth in the same period was down 54 per cent at Rs 2,854 crore, against Rs 6,217 crore a year before.
Since 2005, Essar Oil has been in the CDR cell.
A senior executive with SBI also confirmed that Essar Oil has approached the bank but refused to divulge details. “With increase in Essar Oil’s refining capacity to process heavy and ultra-heavy crude, thereby improved revenues, we are confident the company’s repayment strength will go up,” he said. “Also, looking at the kind of employment Essar is generating in Gujarat, we are confident the state government will not ask for a stiff repayment schedule.”
Last month, Essar Oil announced that it had completed the first phase of expansion of its refinery from 14 million metric tonne per annum (mmtpa) to 18 mmtpa. Essar Energy chief executive officer Naresh Nayyar had recently said, “The refinery’s complexity, by virtue of this expansion, had also gone up to 11.8 from the earlier 6.1. This will help us process heavy crude enabling it to produce high-quality petro products.”
He added, the expansion would push the company’s revenues up by 35 per cent next year.
But the company has been saddled with two body blows in the recent months. On January 17, the Supreme Court had ordered Essar Oil to pay sales tax for not finishing the construction of its refinery at Vadinar in Gujarat before August 15, 2003. A month later, the company also lost an Rs 3,013-crore insurance claim.
Essar filed a review petition to the verdict, and argued that the refinery was delayed because of a cyclone and a stay order secured by a civil society body. But the apex court, on April 4, 2012, dismissed the review petition seeking reconsideration of the court’s earlier order for payment of Rs 6,300 crore as sales tax to the Gujarat government.
The dispute which centered around Essar Oil’s eligibility for sales tax deferment. Had Essar completed its refinery by the specified time, it would have been eligible to defer the sales tax payment by 17 years.
Since Essar Oil’s Vadinar refinery commenced operations later than the specified time, the Gujarat government held the company ineligible for the benefit. Subsequent to the ruling, the state had asked Essar Oil to repay Rs 6,300 crore sales tax plus interest accrued.
On Monday, the company’s scrip was up 1.33 per cent at Rs 53.40 on the Bombay Stock Exchange.