Essar Energy reports loss of $568 m in 2011

Written by fe Bureau | Mumbai | Updated: Feb 28 2012, 08:24am hrs
London Stock Exchange-listed Essar Energy reported $568-million loss in 2011, compared with a profit of $248.4 million a year ago. Earlier, the Supreme Court had ruled against a Gujarat High Court order that allowed its Indian subsidiary Essar Oil to claim sales tax benefits under a deferment scheme.

Revenues (including sales tax benefit but before its subsequent reversal) were up 60% to $16 billion as it earned 21% more in refining and marketing revenues in India after it sold products at higher prices and acquired Stanlow refinery last year.

Essar Energy, 77% owned by Indian conglomerate Essar Group, is the majority shareholder in Essar Oil, currently seeking a review of the Supreme Court order. The net effect of the apex court order is $655.5 million on the companys profit after tax, Essar Energy said.

On the LSE, shares in Essar Energy, which are worth less than a third of the value of their listing price in 2010 and have fallen by 41% in the last three months, closed at 126 pence on Friday, valuing the company at about 1.6 billion pounds ($2.5 billion). On Monday, BSE-listed Essar Oil shares fell 7.49% to close at R61.10.

We are in talks with the Gujarat government to repay the liability on deferment of sales tax through installments over 5-7 years, Naresh Nayyar, the chief executive of Essar Energy told the media in a conference call on Monday. But, more clarity on the issue will emerge after the Supreme Court verdict on our review petition.

Essar Energy said its power plants performed at a plant availability between 92% and 100%. Logjam on the regulatory front last year was hampering our power projects, said Nayyar. But since our meeting with the prime minister, we are witnessing a positive change. A decision on fast-track approvals for mining at captive coal blocks is expected to be made at the next meeting of the empowered group of ministers.

Essar Oil is in talks with banks for fresh credit facility. The company will also issue fresh equity to raise $600 million in the next 12-15 months. Public shareholding of the company will be raised to 25% by March 2013, in line with the market regulator Sebis requirements, from 10% now, Nayyar added.

Essar Energy said it was having to source costly coal from outside India to fire its power plants as it awaited the government clearance for it to be able to start mining its own coal. As a result, Essar said it may shelve plans for three power projects which would require $3.1 billion of investment.

Essar Energy has also decided to progress the construction of three of its later stage power projects at Salaya II, Salaya III and Navabharat I, totalling 2,970mw, only against certain milestones, said the company.

Deutsche Bank analysts said that the decision to possibly scrap the power projects and not participate in the Essar Oil capital raise would give Essar Energy more headroom and make refinancing attempts easier.