| News Room |
| "We
will bid for SCI at realistic levels"- Mr. Shashikant
Ruia, Chairman of Essar group |
| Business Line - September
16, 2002 |
Ambarish
Mukherjee |
|
What took-off
as a small Chennai-based construction company in 1969 called
Essar Construction, founded by two sons of a city trader
and contractor N.K. Ruia, is today a well-known industrial
group in the country. Over the past 33 years, the Essar
group has spread its wings across the country and abroad
to set up businesses in places such as Indonesia.
Today, with an asset base of Rs 17,000
crore, group Chairman, Mr Shashikant Ruia, now 59,
is in the final stage of restructuring the group's
businesses. He has already set his eye towards a relaxed
retired life when he can spend time with his grandchildren
and play golf. But, before that, he wants to resurrect
the group's image, which has suffered during recent
years.
In a free wheeling interview with Business Line,
Mr Shashikant Ruia shares his views and future plans.
Excerpts:
|
| What is the
driving philosophy of your group? |
| The Essar group
is always in the forefront of new opportunities. Following
deregulation's and new markets opportunities, we moved
swiftly to capitalise on them. Our early start in the telecom
business has made us a key player in the domestic telecom
market. Similarly we took advantage of new markets by setting
up India's first new generation private steel plant and
first independent power plant. We were one of the first
to apply to build an oil refinery and to bid for drilling
contracts and oilfield exploration rights. |
| Post-1998
we have seen that the group was having problems with institutions.
Can you tell us the reasons? |
In 1998 the
economy took a downturn. Steel prices were down from $360
to $170 and consequently there was no cash profit available.
We approached the financial institutions for restructuring
of the debts which means turning out the long term debts
towards the further period and reduction of interest rates.
There
is an industry problem for those industries, like ours,
which came up in 1995-96 because of the high interest rates
prevailing at that period. All our projects, whether it
is steel, power or refinery was tied into this high interest
rates.
Those interest rates were not sustainable and has
come down now to realistic levels of eight to nine per
cent. Consequently there is a mismatch because returns
were not sufficient due to the downturn of the economy
to service such high interest rates. Even the Finance Ministry
is alive to this problem. |
| But those
ordinary shareholders who have invested in your companies
have lost money. Isn't it? |
| Let us look
at the public subscription in our equities in oil, shipping
and steel companies. Let us take up Essar Shipping first.
Consistently the company has paid 20 per cent dividend
and there is no problem with my Essar Shipping shareholders.
Now let us take Essar Steel. Out of the total Rs 330 crore,
what we have raised from the public is only 33 per cent,
to be precise. I am holding 51 per cent and 22 per cent
is raised from the institutions. So roughly around 35 per
cent is actually raised from the public, which means around
Rs 100 crore or lets say Rs 120 crore purchased at an average
price of Rs 35. In Essar Oil I am holding 68 per cent and
the institutions have 20 per cent. |
| Can you share
some more details about the shipping business and your
plan to acquire Shipping Corporation of India? |
Essar Shipping
has been consistently making profits for the past 26 years.
It owns eight per cent of the world's double-hull double
bottom suezmax tankers. It has one of the youngest shipping
fleets. The company is moving towards becoming a sea logistics
service provider. The debt-equity ratio stands at 0.65:1.
The investment in oil terminal project will lend synergy
to its sea logistics business. The project cost of the
oil terminal is around Rs 1,874 crore and the terminal
is expected to be completed six months ahead of commissioning
the refinery.
We do plan to bid for Shipping Corporation and have completed
due diligence. However, the final decision to bid will
be taken when financial bids are invited. We shall bid
for SCI at realistic levels. |
| How do you
plan to revive Essar Steel? |
| During the
last quarter, i.e., April-June 2002, the company has been
able to reduce its losses to Rs 138.22 crore as against
a loss of Rs 213.88 crore in the corresponding period last
year. Our focus now is to restructure the finances. The
long-term debt in Essar Steel is around Rs 4,400 crore
out of which more than 50 per cent is international debt.
Restructuring will not only strengthen the operations but
would also help the company generate enough cash flows
on a sustainable basis to meet all its obligations and
reward its stakeholders as well. If the current steel prices
continue and coupled with the restructuring, revival of
Essar Steel should not be difficult. |
| How do you
plan to go about in sorting out Essar Oil problems? |
| As far as Essar
Oil is concerned we are close to resolving all the issues
with the financial institutions. The refinery project has
achieved full financial closure. The necessary equity of
Rs 1,200 crore has been fully tied up along with ABB whose
contribution is Rs 395 crore. ABB has also provided completion
guarantee. The total project cost of Rs 8,000 crore is
being funded by way of equity of Rs 2,148 crore and a debt
of Rs 5,582 crore. Entire debt has been tied up with the
financial institutions. We expect to recommence the refinery
project shortly. |
| Since your
existing power plant has stabilised; when do you plan the
second phase expansion? |
| We have in-principle
approval from the Government of Gujarat to double the capacity.
But credit rating of the State electricity board is a matter
of concern when it comes to expanding power generation
capacity. But there are opportunities opening up in the
power distribution sector. We are currently studying these
options. |
| Do you have
any expansion plans for the telecom sector? |
| As you are
aware, in telecom we have Hutchison as our joint venture
partner. Along with Hutchison we have presence in 10 circles
with a combined subscriber base of 1.5 million. We have
100 per cent holding in three circles, namely, Haryana,
East Uttar Pradesh and Rajasthan. The cellular business
in the country has witnessed exponential growth. Currently
we are in the process of consolidating our operations in
the telecom sector. |
| How do you
plan to get back to overall profitability? |
| By restructuring.
I have no problem in power,shipping and telecom. Steel
is now getting revived and the only thing left is oil.
As soon as I fix oil then I will come out in profit. |
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