Essar Oil, the second largest private oil refiner in the country, is understood to be in advanced stages of negotiations with a consortium of banks to raise as much as $4.4 billion (Rs 18,480 crore) to partly fund its capacity expansion plans.
Essar Oil has earmarked over $6 billion (Rs 25,200 crore) to triple its oil refining capacity to 34 million metric tonnes per annum from the current 10.4 million metric tonnes. The company hopes to process over 10 lakh barrels a day from the current processing capacity of 2.2 lakh.
The company is in talks with Standard Chartered bank, ICICI Bank, State Bank of India and IDBI to raise funds through a combination of rupee and foreign currency loans. “While Standard Chartered is the lead bank for the foreign currency loan, ICICI will lead the consortium for rupee loans,” said a Mumbai-based banker close to the negotiations.
An Essar Group spokesperson said the company would not comment on financial transactions of any of the group companies.
Essar Oil shares were down 2.01 per cent or Rs 4.20 to close at Rs 204.65 on Bombay Stock Exchange on Tuesday.
Essar Oil would sign an agreement with the banks in a couple of weeks, according to the banker. The loans will have a tenure of 12-years with a reimbursement period of eight years, with a moratorium on payment for the first four years.
Apart from the borrowing, the promoters are expected to infuse $2 billion (Rs 8,400 crore) in equity to finance the project. Essar Oil MD, Naresh Nayyar had said at an analysts’ meet recently that “The first tranche of capital infusion by the promoters of $1 billion (Rs 4,200 crore) will be made as soon as the financial closure is completed.
The second tranche of $1 billion will be completed by the end of this year.”
After the infusion of funds, the company will have a debt to equity ratio of 1.3:1. The expansion plans are expected to be completed by the end of financial year 2010.