Dec. 18 (Bloomberg) -- Essar Oil Ltd., operator of India's newest refinery, plans to raise $4 billion, half of it overseas, to more than triple capacity at the facility.
The funding plan will be completed next month, Naresh Nayyar, managing director, said in an interview in Mumbai. Shareholders today approved a plan to sell $2 billion of shares to the group, controlled by billionaire brothers Shashi and Ravi Ruia, to pay for the remainder of the Gujarat, western India-based plant.
Essar, whose shares have risen five-fold this year, needs money to narrow the gap with Reliance Industries Ltd., 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.''
Essar Oil's 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,'' Nayyar said yesterday, without saying whether Essar will sell bonds or obtain loans. ``We've already placed orders for all critical items.''
Shares Rise
Shares rose 31.3 rupees, or 12.2 percent, to 287.3 rupees at 2:34 p.m. local time on the Bombay Stock Exchange today. They earlier rose as much as 16.8 percent.
Essar Oil has gained 50 percent 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 metric tons a year by 2012 from 149 million tons now, boosting exports, Dinsha Patel, junior minister for oil and gas, said Aug. 16.
India had a surplus of 20.1 million tons 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.
Increase Capacity
Essar will increase capacity at the western India-based refinery to 34 million tons a year, or 680,000 barrels a day, from 10.5 million tons now.
Reliance Petroleum Ltd., 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. Parent company Essar Group 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.
Heavier Crude
Essar has placed orders to buy heavier varieties of crude oil from the Middle East, Nayyar said without elaborating. The company also plans to buy sour crude varieties from Mexico, Brazil and Venezuela.
``Our goal is to process 1 million barrels crude a day, of which 700,000 barrels a day will be processed in Jamnagar,'' Nayyar said. The company plans to build or buy overseas refining capacity of up to 250,000 barrels a day.
Essar plans to sell 80 percent of the fuels processed at its refinery in overseas markets. The company plans to market gasoline and diesel from its Jamnagar refinery in Southeast Asia including China and Middle East, he said without elaborating.
``Though the demand isn't huge now, marketing in east African countries will make economic sense for us,'' Nayyar said. Essar is looking to buy a stake in fuel retailing companies in African countries such as Kenya, Tanzania and Nairobi, he said.
Nayyar declined to comment on reports the company is planning to buy a 50 percent stake in a Kenyan refinery. Essar plans to buy a 50 percent stake currently owned by Chevron Corp., Royal Dutch Shell Plc and BP Plc, Press Trust of India reported on Dec. 10.
Exploring Oil
Essar Oil will bid for rights to explore oil and gas areas offered by the Indian government on Dec. 13, Nayyar said. The country offered a record 57 areas last week.
The Indian government expects companies to invest $3.5 billion in areas they secure in the auction, M.S. Srinivasan, secretary to India's oil ministry said on Dec. 13. The previous six rounds had drawn cumulative investments worth $8 billion.
The company may look for partners to jointly bid for areas auctioned, Nayyar said.
