Member Info for parkside13

Well downwards as it closed at 149!! The deal depends on how much value they give up to get a loan. Remember they are overleveraged and so need a deal. Anyhow, it's an MOU not a contract so the equity npv benefit isn't at all clear yet.

Thanks. My simple overriding concern with this is the leverage and the tightness of the EBITDA cover. 1.2x is frankly horrible when some of the business is quite volatile. If you have stable cashflows with good credit 1.2x is poor but possibly manageable but when you have a refining business which is volatile, not enough generation online, shale gas E&P then 1.2x is a millstone. They have clearly been trying - and failing - to refinance this for quite some time and I still assert the reason why the old FD was "pushed upstairs" was that he couldn't execute on this. Hardly surprising given the overall debt levels. They could sell assets; as some here have asserted they started putting a lot of assets in a few years back when arguably asset prices were lower but I'm not sure they will get value for say MWs if they don't have fuel yet or at least economic fuel. So I'm not sure assets sales will help and in any case they will be wedded to their assets as they dominate and own the Company. So I think it'll be a long slow bumpy haul. And as I say anyone who thinks this is a £4 "no brainer" is in la la land.

As if to emphasise Essar Oil results, couple of downgrades of recommendation today. So def no trading rerating but both pieces of research did emphasise the refinancing. The benefits of this are probably not entirely expected as Essar has been talking about for so long that no one quite believes they are going to do it. But if they do, and at a reasonable rate, then the NPV to equity should be pretty large. So that is the key driver, as if we didn't know it already!

Just read the Morgan Stanley research on Essar Oil and results pretty much bang in line with their forecasts. So the results last week aren't a market beat and it emphasises that the big deal here is the refinancing. So the results were in line from oil which is fine but no re-rating news it would seem.

Well all we need now as equity holders is the projects to be delivered on time and budget, to deliver the modelled returns and the debt renegotiation, which they just haven't delivered on at all, is bunce. But to say $1.6bn of debt renegotiation solves the equity is faintly "un buffet esque" and bluntly ridiculous. It is not a no brainer, it is high risk and fraught with danger. If it works great but it hasn't til now.

Yup just looking at the numbers debt 2011 was $6.13bn, 2012 was $7.00bn, 2013 forecast around $9.3bn and 2014 around $9.5bn. Net debt to EBITDA looks precarious in 2013 at around 8.6x with interest cover at 1.2x. It starts to improve in 2014 as the (hoped for) ramp up in revenues from new projects starts coming through. So, as I say leveraged to the whatnot but if they deliver, the equity is very highly geared to it. If they get it badly wrong then oblivion or near oblivion!! Well a lot lower share price anyway!!

Yup Oil results look okay but I would point out that Essar has been saying it will refinance some debt for time immemorial and hasn't achieved it. They say it every time you meet the management, the latest line being that they will tap the Chinese for some debt! So I will believe it when I see it. As for the debt getting larger, it will get larger, materially so. I think, from the analysts' forecasts I have read, it will peak at about $9.2bn which is some 50% more than the last balance sheet point. This is, of course, taken into account by analysts and the market but it is the control of this number - ie will it be more or less than forecast and what is the rate - that will affect equity cashflows and value - which is all I care about. So yup Oil okay but then it was always going to be okay! Whether with the recent drop in crude oil prices, they can maintain margins is another debate.

Well I haven't had an epiphany, I've always viewed it like that. Bit of a corporate mess, too much leverage for comfort and a minority interest floated (which I hate and after all those awful Russian muddles so do UK investors). But with Essar they aren't Russian (a good thing) and I'm sure their engineers are very talented. So we will see. The shares are up today I notice, so someone loves em!

Hi. Well Essar is a very complex (and messy) company and without the benefit of (good) analyst research it is tricky to summarise the cashflows. Also they have floated a minority and so the listed shareholders really have little say in how the company is run and so as a buyer of the "minority" equity you would naturally apply quite a big discount to intrinsic value. I always believe the Ben Graham mantra which is having a good margin of safety and I always try to invest with good management who make sound capital allocation decisions. I don't like high leverage so in short I have completely thrown away my rule book with Essar which comes into "a complete punt" territory for me!! So break the habit of a lifetime! Essar floated "a bit" of themselves and the performance of the Company both operationally and non operationally has been poor - no getting away from that. The shares have fallen around 75% from the listing price reflecting this. The tax bill was unfortunate but sympomatic of a rather haphazard Indian tax system and burying the trisks in the prospectus didn't help I guess, albeit they wouldn't have sold the shares if they had stuck it on the front cover! So anyway, Essar is highly geared and has built (mainly by debt) a huge number of MWs of new power, is drilling for gas, is upgrading refineries and generally doing lots of energy and power "things". So their equity (built up over decades) is leveraged a lot and they are rushing improve ROE through, for example, opening mines to source cheaper domestic coal (so they are no beholden to expensive imports and I guess even expensive domestic coal), improving refining margins and drilling for coal bed methane all of which that will generate improved cashflows to reduce debt and ultimately some of that cash will start to flow to equity. In the meantime they need to reduce the burden of debt (or at least the P&L burden). They can do this by refinancing some of the debt into dollars which is cheaper and if they do this successfully the equity npv could be fairly dramatic . So in short and from 64,000 feet they need to operationally improve and I suspect they are pretty good at this as India has a great engineering heritage; they need to improve their balance sheet, which, I suspect, won't happen very quickly (albeit the refinancing of the debt which will hep the P&L and hence be equity positive) and then they need to improve the quality of their reporting - which has been a little tardy. And no ugly surprises and a mode of delivery delivery delivery. Then the equity will probably be okay, caveated by the gearing and general corporate "mess" makes this a punt for me.

With the greatest of respect why on earth do you think the share price ticking up a few p is a portent of a good RNS? It might be shorts closing out, index buying, someone actually does know something, someone hopes for something who knows??! As I said Essar seems quite high beta at the mo' so the mkt goes up Essar goes up more, and vice versa. But I wouldn't extrapolate a few p rise with "the RNS should be good"!

Strangely enough I do follow it, and as a professional fund manager with 20 years experience I oddly do know how to value an equity! In this company's case I agree the backdrop is interesting but there is a world of difference between a spreadsheet and the real world of execution. If they do achieve it (and they haven't up til now) then the equity is highly geared and will do well. If they don't the debt will consume the equity to a greater or lesser degree. Clearly I'm rooting for them!

Well if it were that simple the shares would be £4. But it just isn't! The market is quite efficient and until they prove execution and start to generate the ample cashflows to amply service that monstrous debt pile, the shares are going nowhere. When or if they do then they will rise. The magic of equity dcf!!

Well we wont get any comfort on the debt yet as it is still rising as the tail of the capex runs off. The debt is clearly manageable if they get the cashflows online and more so if they deliver the debt restructuring. But operationally they have not shone, albeit these are big infrastructure projects which are always late, and given the level of debt any slippage has a big impact on the equity. Of course that works both ways and hopefully, in due course, they will sort themselves out and the poor equity holders might start to recover the lost ground. But it is a long haul!

Well they have to "grow up" as they have leveraged themslves to almost breaking point, flogged a bit of themselves on the LSE to unsuspecting institutional investors who have seen operational underperformance, a hideous tax bill leading to a (totally justified) near 75% decline in share price. So truly quite a bit of rehabilitation starting with a mode of under promising and over delivering, no more nasty surprises, clean up their accounts and indeed acting like a FTSE 250 (and then FTSE 100) Company. Constant youtube videos and Bloomberg interviews whilst jolly interesting to look at over lunch dont "make for" improved (or the prospect of improved) equity cashflows, debt reduction and ultimately dividends to shareholders - they are a quasi utility after all and really need to ponder dividends when their debt is manageable and stable. So lots and lots to do to actually, tangibly start to deliver. In the meantime, as I say, it'll be very bumpy with little room for more mistakes.

Well analysts do but as I have seen the results presentations have been messy and so hopefully the new FD will improve things. Interesting video and coal bed methane seems quite a high roe business albeit it quantum of income won't help debt much. Need that debt restructuring!

Seems to be quite a high beta stock at the moment so going up with the market. I'm still not sure I see the equity cashflows or the npv of the equity tangibly improving quite yet albeit the debt is a marginal positive and if they do the big chunk that should give them a bit more breathing space. But I'm guessing overall debt is still rising as capex comes to an end before project cashflows start reducing it. Did I see somewhere debt peaks at around 9 to 9.5bn? Be interesting to see their next Q results and whether the new FD improves the presentation of them. As one analyst said, "they seem to have 5 different ways of presenting EBITDA"!!

They don't have nearly enough equity (well they don't have any actually) to fund the plant. So the best hope is they get it permitted and then find an equity partner who can give them a carried interest. Alternatively permit it and sell it. Remember there are a lot of older coal fired plants that are converting much more easily to biomass - Drax, Tilbury etc and so how much value is there in a new consent when you can convert and existing plant with existing switchgear, grid connection etc.

Yup might be a good investment if they get the equity cashflows resolved which is what they said they are focussed on. So refinance, get the power plants operational, get the mines open, get the coal bed methane cashflows up and hope refining margins stay okay. If they do all of that well then, over the longer term, the equity should benefit. But it'll be a bumpy ride as the debt outweighs the equity significantly.

Well the asset (refinery) is in Rupees. You can always hedge the commodity going in and coming out but you are unhedging the asset (which may not matter here). Granted your debt cost may fall and volatility should also decline. So yes I think it is positive but wont diminish the debt pile, It might just make it more affordable and relieve some pressure on equity cashflows. So yup likely a bit good!

Well it may be. We don't know the commercial terms are. Presumably it achieves (partially) the swap of high cost, shorter term Rupee debt into something else, presumably more stable, long term $ debt. It may well be that the previous FD moved because he had achieved the first part of this restructuring. But we don't know what impact it will have on cover ratios and debt cost, hence it is impossible to tell what the NPV impact is on the equity. So may be good news but the extent of that is difficult to judge. I'm not being negative as I'm a shareholder but at least this could take some pressure off cashflows.