Essar to raise $750 mn for Vadinar expansion

Essar Oil plans to raise $750 million (over Rs 3,000 crore) overseas to expand its Vadinar refinery into the second-biggest crude oil-processing plant in the country.

The Vadinar refinery in Gujarat currently operates at a capacity of 7.5 million tonnes and it is expected to reach its full capacity of 10.5 million tonnes by October.

The company is seeking shareholders approval to raise the funds to expand the plant's capacity to 16 million tonnes in three years, it said in a statement to the Bombay Stock Exchange.

Refiners, including IOC and Reliance (two of the biggest in the India) and their counterparts are raising refining capacities over the next five years to meet the country's fast-rising demand for fuels.

The Vadinar refinery can produce LPG, naphtha, diesel, vacuum gas oil, jet fuel, kerosene, fuel oil and petrol. The refinery upgrade would also enable the unit to produce petrol and diesel compliant to Euro III and IV emission norms.

The Essar Oil board yesterday approved the proposal to raise funds through the issue of FCCB/GDR/ADR to part finance the company's Rs 4,800 crore expansion plan. The remaining funds would be generated from internal accruals.

Essar Oil will convene an annual general meeting on September 29 to seek shareholders approval for the proposal. The instrument of the fund collection will be determined after that.

Industry sources said the company was unlikely to sell shares in the overseas markets as it was contemplating delisting in the domestic markets.

"This (to raise fund through FCCB/GDR/ADR) is an enabling proposal. The company is likely to raise funds through FCCB if it delists its shares in local markets," said an analyst.

The Essar Oil board approved the decision to delist shares in January and received the shareholders' nod for delisting in mid-March. Now, the Essar Group has sought Sebi's permission to delist Essar Oil through the reverse book-building process without having to make an open offer.

Petrol and diesel are transported by rail and road to Essar petrol stations in Gujarat, Maharashtra, Madhya Pradesh and Rajasthan, or exported. The company has about 1,100 petrol stations and exports 70 per cent of its products.