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Essar to Decide on Shell Assets by June

THE WALL STREET JOURNAL

MARCH 30, 2010

By AMOL SHARMA

MUMBAI—Indian conglomerate Essar Group will decide by June whether to move forward with the purchase of three European oil refineries from Royal Dutch Shell PLC as part of its global expansion plans, the company’s chief executive said.

The companies extended their exclusive talks in November without specifying a time frame. Essar Group CEO Prashant Ruia said the company is studying whether the deal makes sense now, given the low refining margins globally in the oil business.

The company decided “that we would like to wait a while and study it,” Mr. Ruia said in an interview. “It’s something we want to be 100% sure about when we do it. We’ve already done a lot of homework on the transaction.”

Acquiring the Shell refineries, which are in the U.K. and Germany and can process 500,000 barrels of crude oil per day, would move Essar closer to its target of handling one million barrels per day in coming years. Essar currently operates a 280,000-barrel-per-day refinery in Western India. Larger rival Reliance Industries Ltd. already handles 1.24 million barrels per day at its Indian refineries.

Oil companies world-wide are struggling with low profit margins due to depressed demand for fuel. That is why majors like Shell and Chevron Corp. have put some refinery assets on the block. Indian companies such as Essar and Reliance are using the opportunity to scout for assets overseas and build a global footprint that will help them sell into markets in Europe and Africa when prices rebound.

“We are totally convinced that the margins that are so low right now won’t stay there. We do believe they’ll rise,” Mr. Ruia said.

Mumbai-based Essar, which started out as a small Ruia family construction company in the late 1960s, has transformed itself into a conglomerate with interests in oil, power, steel, shipping and telecommunications and $15 billion in annual revenue. It has been one of India’s most active acquirers of overseas companies in recent years, with purchases of steel, outsourcing and coal-mining companies in North America.

Essar is also considering listing an entity including its oil and power businesses on the London Stock Exchange to raise $2 billion to $3 billion in what would be the largest overseas listing by an Indian company, people familiar with the situation said. The company intends to complete the listing this year, if possible, but some potential investors think Essar’s roughly $10 billion valuation for the assets is high, the people said.

Mr. Ruia said the company hasn’t completely made up its mind on whether to follow through with the listing, but said raising equity isn’t necessary to complete the Shell deal. A deal for Shell’s refineries could be valued as high as $1.5 billion, but Essar may contribute some equity from its domestic oil business to lower the price tag, according to a person familiar with the situation.

“We have the ability to go out and do that transaction without waiting for capital to be raised,” Mr. Ruia said. He said Essar is looking to raise new capital, however, for its roughly $8 billion expansion plans in India.

The company intends to boost its domestic refinery operations to 360,000 barrels per day by March 2011, and 720,000 barrels in a later phase. It is also rapidly expanding its power business, with plans to increase its generation capacity from 1,200 megawatts to 6,000 megawatts by 2012. Mr. Ruia said the company could also opt to raise equity in India if family members choose to dilute their large shareholdings in various Essar businesses.

The Ruias own more than 84% of shares in all group companies.

Write to Amol Sharma at [email protected]

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royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

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