Essar shares hit by fears over red tape

City A.M. Reporter
INDIA-FOCUSED refiner and power generator Essar Energy said three projects would be delayed as it continues to battle hold-ups from regulators, hurting its shares.

The company said yesterday there would be “minor delays” to three power projects and that it is still awaiting forest clearance from the Indian government for its three coal blocks which will provide fuel for the two of its power stations.

Shares in Essar closed down 3.8 per cent at 247.9p, paring earlier losses of as much as six per cent, and making the company the second-biggest loser on the blue-chip index.

“We believe that Essar Energy now faces a trust deficit and therefore there will be an even greater investor focus on project delivery times,” said analysts at JP Morgan.

Essar Energy said in its statement: “Not only do these delays impact the economic returns on projects, but they are acting to discourage investment in the sector from project sponsors, debt providers and equity investors.”

For the six months ended 30 June, the company posted earnings before interest, tax, depreciation and amortisation of $477.9m (£290m), up from $320.2m last year, boosted by higher refinery margins.

This compared with a company-supplied analyst consensus figure of $467m.

JP Morgan that earnings missed consensus when measured on a current price basis, having been negatively impacted by a foreign exchange loss in the company’s oil and gas unit.

The FTSE 100 company was positive on the future of its refining business, saying it expected margins to stay at their current high levels to the end of 2011.

“Strong global demand, the earthquake in Japan and events in the Middle East and north Africa pushed up refining margins in the first half of 2011,” the company said.

The firm recently agreed to buy Royal Dutch Shell’s Stanlow refinery in Cheshire for $350m.