Essar Power, the power producing subsidiary of UK-listed and India-focused Essar Energy, has embarked on financial and operational fine-tuning, on the lines of its sister firm Essar Oil.
The company is planning to convert almost a third of its high interest debt of $3 billion into a lower interest, higher maturity period rupee-denominated debt.
“We are issuing rupee bonds worth of `5,000 crore to repay the current debt.
This will not only help us in reducing our interest rate, but also in extending the maturity of the rupee debt,” said Naresh Nayyar, chief executive officer of Essar Energy, said in a media conference call on Monday after announcement of the financial results.
While the objective of Essar Power for financial restructuring is same as Essar Oil, the strategy is different as unlike Essar Oil its power business has rupee profit & loss numbers and rupee-based balance sheet.
Through the bond issue the company will reduce its net interest rate by 1-2% and increase the debt maturity by 2-3 years, Nayyar said.
Besides this, on the operational side too, the company is looking to reduce costs by slowly shifting to a completely coal-based power generation from a partial gas-based one.
It is converting two of its gas-based captive power plants – Hazira, which is of 515 megawatt (mw) and Bhander of 500 mw – into imported coal-fired plants by 2015.
Deepak Maheshwari, chief financial officer, Essar Energy, said the move will halve the variable production costs of the two plants.
“In fact, by 2015, the total power generation of the company will stand at 6,760 mw and most of it will be coal-based,” said Nayyar, adding this will make Essar Power financially and operationally robust.
The street too feels the same as power is the only sector which has so far been a drag on Essar Energy’s financials.
“…with the majority of capex now complete and projects delivered, the division offers an exciting option for the Group with operating profit growing 3-fold (potentially 4-fold) over the next 3 years,” said analysts Laura Webster, Hootan Yazhari, Vidyadhar Ginde and Hamish Clegg from brokerage Bank of America Merrill Lynch in a report on Monday.
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