Mumbai: Essar Group, which runs India’s second largest private refiner, may sell stakes in its oil and shipping units as part of a global expansion plan, said Prashant Ruia, the group’s chief executive officer.
There is enough headroom in these two firms, so over the next couple of years Essar will consider raising the free float, Ruia, 40, said in an interview.
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.
Enough headroom: Essar Group chief executive officer Prashant Ruia. Prashanth Vishwanathan / Bloomberg
On Wednesday, the company outbid Jindal Steel and Power Ltd for Australian coal explorer Rocklands Richfield Ltd, raising its offer price by 19% to 144 million Australian dollars ($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 father Shashi Ruia and uncle Ravi Ruia. The brothers, whose first initials form the name, started the company in 1969.
“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. Ltd in Mumbai, said Essar was cash- rich because of its steel and telecom 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%-held by the group, operates a refinery in 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.
The Mumbai-based company then will spend $4.44 billion more 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 71% this year, tracking a 74% gain in the key Sensex of the Bombay Stock Exchange. The shares rose 0.1% to Rs148.90 at close of trade today in Mumbai. Essar Shipping Port and Logistics Ltd, 83.7% owned by the group, rose 3.9% to Rs68.75. The shares have risen more than 90% this year.
To establish a global footprint, Essar Oil bought a 50% 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 on 17 August, declining to be identified because the information is confidential. Ruia declined to comment on the report.
Essar plans to raise $1 billion in a bond sale that began on 5 October and is scheduled to end on 21 October.
Essar Group, which has annual revenue of $15 billion, runs telecom, energy, power, real estate and steel businesses. It sold a controlling stake in Hutchison Essar Ltd to UK’s Vodafone group in 2007 for $11.1 billion, and is expanding its telecom business in Uganda and Kenya. It also is adding steel capacity as it expects demand in India to grow between 8% and 10%, Ruia said.
Rakteem Katakey in New Delhi contributed to this story.