New Delhi, Oct 23: The market appears to give Essar Oil a positive rating even as Crisil has downgraded the company's non-convertible debentures from BBB plus to BB plus. The Essar Oil scrip, which had been hammered to a low of Rs 8.50, has bounced back in the last few sessions. The scrip has seen a smart recovery of 52 per cent to Rs 13. After a bit of downward correction, Essar Oil is now trading at Rs 12.The timing of the scrip's rally, even in a falling market, coincides with the downgrading of the company's debt instrument. Crisil has pointed out that the downgrade has been warranted by project cost escalation due to delay in commissioning of the project. Besides, the fact that an increasing proportion of debt in the overall funding and a significant portion of funding remaining untied have fetched the company negative marks.
Crisil expects Essar Oil's refinery margins to come down on account of depressed oil prices. The company is setting up a crude refinery project with a capacity to process 10million tonnes per annum of crude.
The refinery is being set up in the coastal town of Vadinagar in Jamnagar district of Gujarat. The refinery, scheduled to be commissioned in April 1999, is expected to be delayed by a year as the site was affected by the cyclone which hit the Gujarat coast in June this year.
Essar Oil's problems do not end here. It's group company, Essar Shipping is implementing the storage terminal for the refinery project. But Essar Shipping is yet to tie up funds for the terminal project, which will add to the uncertainties in the implementation of the refinery, according to Crisil.
Partly offsetting these negatives is the favourable demand supply gap for petroleum products in the country in the medium-term.
The Essar Shipping scrip however continues to get a negative treatment from the market. It is languishing around Rs 7. The company has also been downgraded by Crisil as it sees an increase in the risk profile due to the transfer of the ``predominantly debt-funded terminalproject of Essar Oil. Essar Shipping's cash flows depend on the implementation of the refinery by Essar Oil. Besides, there has been a decline in the shipping charter rates in the backdrop of the expiry of a bulk of the company's old charters. However, these factors are partially offset by the strengths of the shipping business reflected in the relatively large, diversified and young fleet, and the liquid nature of the shipping assets.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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