Essar Oil to wrap up $4 bn fund-raising soon

Mumbai: Essar Oil, operator of India’s newest refinery, is likely to complete its $4 billion fund raising plan next month, to triple capacity at its refinery at Vadinar (Jamnagar). Nearly half of the fund will be raised overseas.

Essar, whose shares have risen five-fold this year, needs money to narrow the gap with Reliance Industries, which is using record profits to build the world’s biggest refinery complex.

The Indian refiners are reliant on exports because state-set retail prices make it impossible to profit from selling gasoline, diesel and heating oil at home.

“It will be hugely ambitious to grow as big as that by 2010,’’ said Tony Regan, energy consultant at Nexant Inc in Singapore.

“From 2009, we’ll see significant volumes coming up, mostly from Reliance. So we’re expecting refining margins to come off quite sharply.’’

The Jamnagar refinery started last year almost a decade after it was first planned, as the group’s steel unit faced losses because of falling prices of the commodity.

In the interim, Reliance has built a plant in the same city that’s three times larger than Essar’s and will next year almost double capacity again with a new facility.

“By mid-2009, we should have in hand all the equipment needed to run the refinery at full scale,’’ Naresh Nayyar, managing director, said yesterday, without saying whether Essar will sell bonds or obtain loans. “We’ve already placed orders for all critical items,’’ he added.

Shares rose Rs 31.3, or 12.2 per cent, to Rs 287.3 at 2:34 pm local time on the Bombay Stock Exchange today. They earlier rose as much as 16.8 per cent. Essar Oil has gained 50 per cent since the group last month scrapped a plan to delist from the Bombay Stock Exchange and National Stock Exchange and said it would spend $6 billion in expanding the refinery.

Construction by Essar, Reliance and Indian Oil Corp will increase India’s ability to process crude by 92 million tonnes a year by 2012 from 149 million tonnes now, boosting exports, Dinsha Patel, junior minister for oil and gas, said August 16. India had a surplus of 20.1 million tonnes of fuels in the year ended March 31, of which diesel accounted for more than half.

“We were aware of the tightness in the equipment market thanks to all the expansion plans by Asian refiners,’’ Nayyar said. The company has ordered all equipment that it needs up to 24 months for delivery, he said.

Essar will increase capacity at the Jamnagar refinery to 34 million tonnes a year, or 680,000 barrels a day, from 10.5 million tonnes now.

Reliance Petroleum, a unit of Reliance Industries, is building a 580,000 barrel-a-day refinery adjacent to a 660,000 barrel-a-day plant owned by its parent. Indian Oil, the nation’s biggest state-run refiner, and third-ranked Bharat Petroleum Corp are also planning expansions.

Essar Oil has about $2 billion of debt outstanding, Nayyar said. The parent company last month secured a $3.59 billion loan against its stake in a mobile-phone venture with Vodafone.

Group Plc. BNP Paribas SA, Citigroup Inc, Commerzbank AG and Standard Chartered Plc arranged the loan.