Member Info for parkside13

Results out 10 Feb. I suspect not a lot will happen with this until after the Indian elections.

Interesting that GDF Suez bought a coal fired power station in India before Christmas. Don't know what they paid per MW or MWh of output but might be a good comparator for those that look at Essar on sum of the parts.

If (if) fracking works it won't and can't make a jot of difference to the uk gas price. The uk has very good gas interconnectability with the continent and the gas will be sold to the highest bidder. The only reason that the gas price has fallen so much in the us due to fracking is that it can't be exported as the us only has limited (4) LNG terminals that can export. So if fracking works in the UK Alkane and alike might make a few quid, it won't do anything material for UK gas prices. Don't know why Osborne thinks it will. Oh yes he doesn't have an economics degree!

The debate is will it survive? The answer, who knows!!

It has been bypassed because of its terrible track record of value creation, its appalling management and its huge debt pile. Apart from that everything is ticketyboo in the land of the brothers Bozo!

Have done the rounds of a few analysts now and there is wild diversion on debt. The last analyst made an error on debt and has now confirmed $8.5bn this year rising to $9.5bn next year - so £5.2bn rising to £5.8bn - with interest payments at around $800m (not £804m and apologies here) so that on low ball numbers of EBITDA next year at just over $1bn interest cover is around 1.2x falling to around 1.1x. So interest covers confirmed. The reason debt is different from their numbers is wrapped up in refining working capital which requires a number of adjustments. Anyhow, next debt is a bit lower than I thought it was as they have undrawn facilities of around $1.3bn, interest is in $ as rightly pointed out but the net impact of all this is nothing as interest cover of around 1.1x remains hopeless. And the RNS yesterday was the most bizarre thing I have ever read. It reads like a stream of consciousness. We are reducing capex, focussing on essential spend etc etc. Bizarre and not at all confidence inducing.

Read shiffjnrs post of Tuesday! That clearly states £804m. Unless I'm dreaming. That also concurs with the analysts report broadly.

$ would enhance your equity npv by £2bn. But it doesn't sadly!

The finance cost makes quite a big difference to your equity NPV!!

No £804m. That was confirmed in an earlier post by Lidiard

Nope not according to the analyst report (a good analyst) I'm reading. If it were $6.6bn or £4bn why would the financing cost be £804m!! That is 20%. £6.6bn implies a finance cost of around 12% which in India is probably right. So it isn't $6.6bn!!

$11.1bn of gross debt. That is around £6.6bn isn't it!! Ebitda of around £1.050bn vs financing cost of £804m. And as for equity value you can keep it to yourself!!

Any corporate entity with £6.6bn of debt against construction assets is risky clearly. From the off essar has been high risk and now it is a straight roll of the dice. Fact is its balance sheet is hugely strained. All the guff around it being worth £2 etc is now merely speculation. If it can somehow survive then maybe the equity has some value. As for what that is who the hell knows. It's now in the hands of the debt.

Oh and I should add that the cover ratios I cited are project coverage ratios and not corporate. Corporate would be higher. I'm also using one brokers numbers and consensus numbers are, as Lidiard said, higher. But consensus is too high although the interest charge sounds about right. That assuming none of the debt is amortising. So the problem is the ebitda which is way below, clearly, what they expected. I mean miles below. Bet they had modelled say £1.8 or £2bn of something like that. They have or had an EV of say £11bn so £2bn isn't out to lunch. So bluntly they have hugely screwed up project delivery.

Ha! Well that was a good switch! I just wish I'd listened to my own voice of reason a bit more but hey ho I knew it was a punt and sometimes things don't work out. But I'm still in this pile of poo with some capital and it'll either be worth something or nothing. Onwards and erm who knows!!

I think that summary from seifert is entirely fair. Leverage can be very good but in Essar's case they have levered against construction assets which if they operate properly offer sound long term cash flows appropriate for debt to equity of maybe 70/30 assuming decent ppas and availability. But construction has been slower, availability generally poor and so the interest covers now look terrible. On power projects I've done with merchant risk, ebitda debt coverage has been up to 2x whilst with long term ppas with say a floor, the ebitda cover can be as low as 1.4x. But 1.1x and you are generally screwed and banks will start triggering default. But I agree will the banks want a bunch of power stations? Probably not. Will they let Essar cure this if interest covers seriously look like they might get back to respectibility? Possibly but that might take a higher interest charge. So it looks grim and its a pure punt now. You simply can't analyse something so tight.

Bhagwan as for looking like asses they already look like asses. They have sold a complete heap of garbage to uk institutional investors at 420p, got hit with a $1bn dollar tax bill, screwed up on project delivery and have seen their equity lose 85% of its value. I'm not entirely sure why I should or would feel an ass. The donkeys are the ones running this pile of excrement.

The 1.1x interest cover is one broker forecast and is for 2013 and no improvement in 2014. I don't think given what's happening ebitda will be that high! It all sounds like carnage frankly! His tone is terrible.

Golly that's comforting!!

I've sold 3/4 of my holding and taken a huge hit. My fault. I've kept the balance for the punt it is. If they do restructure yes all the equity will get slaughtered. Inc the Bozos.