Essar Shipping plans $250m FCCB issue

Essar Shipping, Ports and Logistics is planning to raise $250 million through foreign currency convertible bonds (FCCB), according to sources.

On May 27 the company got an enabling resolution from its board to raise up to $500 million through equity instruments, including foreign currency convertible bonds, global depositary receipts and American depository receipts.

The company plans to finance 70% of its capital expenditure through debt and the rest through equity.

V Ashok, director of the company, said, “We have $1.8-2-billion worth of capital expenditure lined up over three years. The money we plan to raise will be used to expand our shipping, ports and drilling business. At the moment we do not know which financial instrument will be used. We are in talks with the banks though.”

As the market is uncertain due to instability in the global financial markets, raising money through FCCBs can be a challenge.

However, analysts said Essar, being essentially a port and infrastructure company, shouldn’t have a problem.

Siddhartha Khemka, analyst, Centrum Broking, said Essar should not find it difficult to raise a relatively small amount of $250 million through FCCBs.

“In Essar since the promoter holding is high, an ADR/GDR/QIP would be a better option as it will dilute some promoter shareholding and expand the equity base,” he added.

During the last fiscal year, Essar Shipping commissioned a 30-million-tonne bulk cargo handling terminal at Hazira. It also achieved financial closure of projects worth about Rs 6,000 crore.

Essar’s current fleet size is 25 vessels to which it will add another 12 over a period of time and 2 new jack-up rigs on order.

In FY09 the company’s net worth stood at Rs 7,960 crore and the total debt on books was Rs 6,740 crore. According to analysts, for FY10, Essar should have a net worth of Rs 8,000 crore and debt of Rs 8,000 crore.