Essar and BASF mull US$2 bln petrochemical JV

28-Jul-14

In a bid to revive its diversification plan, India’s Essar Industries is in talks with Germany's BASF, the largest chemicals player in the world, for a petrochemicals joint venture, as per sources in Economic Times. The diversification plan had been put on hold for long, because of global factors and the company's high debt burden. Essar's refinery currently has a 20 mln tpa capacity and is capable of refining a diverse range of crude. The total project cost is expected to be US$2 bln, inclusive of debt and equity. Both sides are still to sign a definitive agreement. SBI Caps, the investment banking arm of the country's largest lender, is working as an advisor and is currently preparing a detailed project appraisal and financial feasibility report. Essar is one of the most indebted business groups in India Inc. with over US$14 billion of net debt at the end of the last financial year as per a Credit Suisse report - a fallout of its rapid expansion in steel, power and oil refining in the past decade. In FY'14, the net debt of Essar Oil alone stood at Rs 17,410 crore with a very high net debt to equity ratio of 7.1. Essar also has a liability of Rs 6149 crore of sales tax on account of a Supreme Court ruling that it was not entitled to a tax holiday on its refinery. Consequently the company is not keen to commit to new capex just yet.