February 17, 2014 5:26 pm

Opposition mounts over plans to take Essar Energy private

Leading minority investors in Essar Energy have joined Standard Life in expressing opposition to plans by the India-focused oil refiner and power generator’s majority owners to take the former FTSE 100 constituent private.

“It is all wrong. They made a commitment to public markets and so they should stick with it for better or worse, for richer for poorer,” said one fund manager. “You don’t just up sticks at the first signs of adversity.”

Another top 10 investor said: “We are not happy with this move. I would agree that it is opportunist.

“It is another energy deal from the emerging markets that has backfired on traditional investors like us.”

Standard Life had earlier described the move by the Ruia family as “cynical opportunism” that was “a calculated attempt to deprive minority shareholders of the substantial future upside in Essar Energy’s valuation”.

Essar Global Fund Limited, the investment vehicle of the billionaire Ruias, one of India’s richest families, outlined on Monday a 70p a share informal offer for the 22 per cent of the London-listed company it does not already own.

The Ruias have 28 days to make good their approach for Essar Energy, which in effect reverses their commitment made as recently as November to divest more shares to increase Essar Energy’s free float to the 25 per cent threshold required to remain included in FTSE indices.

On Monday, analysts at Deutsche Bank said many may see the pricing as unpalatable.

“Investors may find the offer unattractive although there is a difficult outlook for the company in our view given significant operational challenges in the power business, low refining margins and high leverage, which may also make hanging on to the shares unappealing,” they said.

Malcolm Graham-Wood, an independent energy sector analyst, went further: “The sooner this stock departs these shores and this market the better for everybody.”

Lombard: Financial manoeuvres in the raw

Jonathan Guthrie

What better dirge to commemorate Essar Energy’s planned retreat from the London stock market than “Stanlow” by 1980s group Orchestral Manoeuvres in the Dark?

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However, on Monday EGFL defended its record in backing Essar Energy since its 2010 IPO, which valued Essar Energy at £5.4bn. The flotation at 420p a share of a 23 per cent stake raised £1.2bn and was led by JPMorgan Cazenove and Deutsche Bank.

The value of EGFL’s own stake in Essar Energy had fallen by $6bn since flotation, it said. It blamed the withdrawal of coal mining licences, project delays and wider concerns about slowing economic growth rates in India for deteriorating sentiment towards the stock. It also cited tax disputes and retrospective legislation – “an issue that had also affected Vodafone, Nokia, Cairn Energy and various other Indian and multinational companies” – for its sliding share price.

The shares gained 3.3 per cent to 68.15p on Monday, adding to gains made over Thursday’s closing price of 60p on Friday after the Ruia family’s interest in delisting the company became clear.

A decision on whether to recommend or reject any formal offer that emerges falls to a committee of five non-executive directors deemed to be independent of the Ruias.

The committee is led by Philip Aiken, chairman of the engineering software specialist Aveva and a former director of Kazakhmys, the largest shareholder in fellow Kazakh miner Eurasian National Resources Corporation. Kazakhmys backed a vote to take the troubled company private last year.

Simon Murray, brought in as chairman of Kurdistan oil explorer Gulf Keystone Petroleum last year to help heal rifts between shareholders and executives, also sits on the independent committee along with Steve Lucas, former finance director at National Grid. Other members of the committee are lawyer Subhas Lallah and accountant Sattar Hajee Abdoula, who are based in Mauritius.

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