Essar considers selling unit stakes

Move to be part of a global expansion plan

Essar Group, which runs India’s second-largest private refiner, might sell stakes in its oil and shipping units as part of a global expansion plan, CEO Prashant Ruia said.

“There is enough headroom in these two companies so over the next couple of years we will consider increasing the free float,” Ruia, 40, said in an interview in Mumbai.

Refiners, steel makers and telecom operators are expanding as national stimulus packages help lift the global economy out of the deepest recession since World War II. Essar is buying oil refineries, steel plants, and coal and iron ore mines from Australia to Canada to compete with rivals, including Reliance Industries Ltd and ArcelorMittal.

The company yesterday outbid Jindal Steel & Power Ltd for the Australian coal explorer Rocklands Richfield Ltd, upping its offer price by 19 per cent to $128 million, Sydney-based Rocklands said in a statement.

To fund its plans, Essar Group may do something it hasn’t done since 1995, said Ruia, who has worked for more than two decades in the business started by his father, Shashi, and uncle Ravi. The brothers, whose first initials form the name, started the company in 1969.

Cash-rich
“We would like to go to the market to raise funds when the time is right,” he said, adding that the details haven’t been worked out. “First there will be some activities in the companies that are already listed.” There are no plans to sell shares in the holding company, he said.

Niraj Shah, an analyst with Centrum Broking Pvt in Mumbai, said Essar was “cash rich” because of its steel and telecommunications businesses, giving it the confidence to look abroad for bargains.

“Assets are available at reasonable prices so it’s a good time to buy,” Shah said. “The acid test is how they finance and run and integrate the global assets into the group.”

Essar Oil Ltd, which is almost 89 per cent-held by the group, operates a refinery in the western state of Gujarat that processes 10.5 million tonnes a year. It plans to spend $1.56 billion expanding it to 16 million tonnes by December next year, according to its website.

Shares rise
The Mumbai-based company will spend another $4.44 billion to increase capacity to 34 million tonnes, Ruia said.

“They are expanding capacities in India and need to find markets overseas,” said Niraj Mansingka, an analyst with Edelweiss Capital Ltd in Mumbai, who has a “buy” rating on the stock. “This is a good time to expand considering costs of assets are comparatively low.”

The refiner’s shares have climbed 74 per cent this year, tracking a 75 per cent gain in the benchmark Sensitive Index of the BSE. The shares rose as much as 2.2 per cent to Rs 151.95 and traded at Rs 151.10 as of 11:49 am in Mumbai. Essar Shipping Port & Logistics Ltd, 83.7 per cent owned by the group, traded at Rs 68.60, up 3.6 per cent. The shares have risen more than 90 per cent this year.

To establish a global footprint, Essar Oil bought a 50 per cent stake in Kenya Petroleum Refineries Ltd in July. It also bid for Royal Dutch Shell Plc’s Stanlow plant in England to add capacity in Europe and gain access to markets and pipelines, a person familiar with the matter said August 17, declining to be identified because the information is confidential. Ruia declined to comment on the report.

Essar Oil is seeking coal-bed methane exploration assets overseas and is studying exploration opportunities in China, India and Indonesia, Chief Executive Officer Shishir Agarwal said October 1. The company may spend $300 million to produce natural gas from a coal seam block in the east India state of West Bengal that is expected to start production in December.