UPDATE 2-INTERVIEW-Essar Energy looks to cut rupee debt
* Plans to refinance $1.5 bln worth of rupee debt in foreign currencies
* CEO says focus is now on improving cash flows, mainly from refining business
* Shelves Essar Oil stake sale plan
(Adds further details, quotes)
MUMBAI, Oct 29 (Reuters) - Essar Energy plans to refinance up to $1.5 billion worth of its rupee debt overseas within six months, its chief executive said on Monday, as the India-focused group concentrates on improving its balance sheet after a turbulent period of heavy capital spending and regulatory setbacks.
The London-listed company has been under pressure after it missed its 2011 earnings forecast, put some of its Indian power projects on hold due to delays in coal mining approvals, and lost a court case over a tax break at its majority-owned unit Essar Oil.
Its shares were down 2 percent on Monday at 129.6 pence to value the company at 1.7 billion pounds ($2.7 billion). The shares are well below the 2010 listing price of 420 pence and 80 percent off their peak of December 2010.
``The focus has now completely shifted to asset optimisation, and to ensure we start generating the cash flows and income envisaged at the time of investment decisions,'' Naresh Nayyar told Reuters in an interview.
``The second focus is to improve the overall health of our balance sheet. We have just completed a massive capex programme, we are very highly geared.''
Essar Energy, 77 percent-owned by the privately held Indian conglomerate Essar Group that is controlled by billionaire brothers Shashi and Ravi Ruia, had net debt of $5.8 billion at the end of June, mainly from boosting its India refinery capacity by a third and funding power projects.
The company is facing delays in gaining environmental approvals for coal mining and coal supply shortages, forcing it to delay three of its coal-fired projects, but Nayyar said he was confident of having 6,700 megawatts of capacity in production by a March 2014 target.
``This is a temporary setback. Once we start getting the coal this business will start generating strong cash flows,'' he said.
Essar Energy currently operates six power plants in India and another in Canada with a total capacity of around 3055 MW.
STAKE SALE SHELVED
Essar Energy has also shelved plans to sell about 15 percentage points of its near 87 percent stake in Essar Oil, Nayyar said, after the markets regulator recently said that depositary receipts would not be counted in calculating whether the company complied with the minimum 25 percent public shareholding rule.
``The latest interpretation is if they don't include Global Depositary Receipts (GDRs) we have a sufficient public shareholding, so no further dilution is required,'' Nayyar said.
He said Essar also did not require funds at present as Essar Oil had tied up a loan facility to help settle a large sales tax liability in India.
Nayyar said the plan to refinance $1.5 billion worth of debt would nearly halve Essar Energy's rupee debt cost from the current average of 13 percent.
``Particularly in our Essar Oil business in India, we have a currency mis-match and also maturity mis-match. So we are pursuing that option,'' he said.
Essar expects its large refineries in western India and the United Kingdom to lead growth.
It recently expanded capacity at the Essar Oil refinery in western India by about a third to 405,000 barrels per day and Navyar said the upgr ade s hould help boost refining margins to around $8 a barrel from the current quarter.
Essar has also carried out m easures to improve efficiencies a t its 296,000 barrels-a-day Stanlow refinery in northwest England, which it acquired last year. Th e se co uld b oost refining margins, at $3.06 at the end of March, by $2 per barrel by March 2013 and another $1 per barrel the next year.
``We need a couple of years to stabilise and sort out the balance sheet,'' Nayyar said. ``We know where is the opportunity and what we need to do in the next phase of growth.'' ($1 = 0.6212 British pounds)
(Editing by Michael Urquhart and Greg Mahlich)