Essar Oil board calls off delisting plan

Essar Oil has said that it will to adhere to Sebi, stock exchange, listing and other guidelines. Sebi’s discovered price was Rs 104 per share. Promoters believe that the fair value is at Rs 200 per share.

The Board of Essar Oil has okayed up to USD 2 billion preferential issue to promoters at Rs 200 per share, via GDR issue, reports CNBC-TV18.

It will invest USD 6 billion to raise the refining capacity by 2010. Essar Oil will raise its refining capacity by 34 mt by 2010. The GDR conversion price is Rs 200 per share.

The Board has called off the delisting plan. The Ruias had decided to delist Essar Oil in January 2007.

Essar Oil has grabbed its delisting plans and it wants to massively increase refining capacity as well.

The current capacity of Essar Oil stands at about 10.5 million tonne, though they are operating only at about 7.5 million tonne right now. That is about 71% capacity utilization. They are expected to be full onstream by 10.5 million tonne, in the next couple of months.

The reason for that is two fold. One is that they have a diesel hydro de-sulphurising unit, the DHDS unit, and the FCCU unit, which is the Fluid Catalytic Conversion Unit, which will get operational over the next couple of months. So, the capacity will go to 10.5 million tonne.

For this entire 10.5 million tonne, they have outlined USD 6 billion of capex. It is understood that the current debt equity ratio of Essar Oil is about 1:2. For this capex plan, they would look to maintain that 1:2 going forward as well.

The reason we are not factoring in the internal accruals is because their refinery had come onstream in November 2006. So, the effective cash flows would be incremental only from March 2008 onwards. The funding seems to be on course.

Sources close to the management did not deny two things- tapping the capital market to raise funds and someone coming and picking up a stake in Essar. Sources added that Essar Oil wants to leave all options open right now. They are planning a capacity expansion from 10.5 million tonne, which should be fully onstream in the next couple of months, to 34 million tonne by 2010.

If one takes a look at USD 2 billion worth of preferential allotment to the promoters at Rs 200 per share, that is about 3.7% premium where the stock closed in trade today. The issue is primarily a GDR issue, where the holders of the issue have no voting rights. So, there is no direct implication on the direct holding that the Essar Group promoters hold into this company right now.

We will have to wait and see because the company has categorically said that they do not want to delist.

So, whether they will actually go ahead and buyback the remaining 10% remains to be seen. But this is very interesting because the GDR plus the diluted issue is about 91%, as it stands right now. Let us wait and see if there is more on the delisting as we go along.