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In just a few weeks, Vodafone has done more for the rebranding of India’s Essar group than years with an image consultant could ever have achieved.

Until recently, Essar was a low-profile Indian conglomerate little known outside the country with the dubious distinction of being the first Indian company to default on a foreign debt, back in the late 1990s. Also, the two brothers who run the company, Shashi and Ravi Ruia, have traditionally kept a lower profile than other more famous Indian industrialists.

But the group is using its 33 per cent minority shareholding in Hutchison Essar, the Indian mobile operator, not only to challenge global operators, such as UK-based Vodafone, but also domestic rivals, such as industrialist Anil Ambani’s Reliance Communications.

According to one person close to the unfolding situation: “The Ruias are loving every minute of being at the centre of this. They usually play second fiddle to dynasties such as the Ambanis. This time the Ruias are calling the shots.”

The takeover battle, in which Essar is threatening to match a proposed bid from Vodafone that values the equity in Hutchison Essar, India’s fourth-largest mobile operator, at $17bn marks a milestone in the re-emergence of one of the country’s leading first-generation business families.

The privately-held group is run by Shashi, chairman, and Ravi, vice-chairman. It had turnover of $4.6bn last year. Turnover is set to increase dramatically in the next fiscal year ending March 2008 to $12.5bn after the group’s long-delayed, 10.5m metric tonnes per annum oil refinery in Vadinar, western India, started production in November.

A close-knit Marwari family from Rajasthan, north-western India, the brothers share a mansion in Mumbai with their sons and sit in the same office at their tower near the city’s historic Mahalaxmi race course.

Their father, Nand Kishore Ruia, established the group in 1956, naming it after the first letter of their names – S and R. But he died young, leaving Shashi, then only 24, with a small port construction business.

The brothers rapidly diversified into steel and power and took advantage of India’s liberalisation in the 1990s to enter the oil and gas, and telecoms sectors.

In a country once dominated by large state-owned groups and traditional business houses, such as the Tatas, the Ruias, along with other upstart first and second-generation entrepreneurial families, such as the Ambanis, became known for being “gutsy” and willing to take risks, says one senior banker in Mumbai.

But in 1999, their flagship company, Essar Steel, defaulted on $250m of foreign currency floating rate notes. The group’s Vadinar refinery was also delayed by the Asian financial crisis.

Some say the group caught the wrong end of the commodity cycle, others say they were too aggressive with debt-funded expansion. “At that period of time, they were a bit adventurous,” says a credit analyst in Mumbai, who declined to be named.

These days, the group says the default is well behind it with debt-to-equity set to fall to 0.84 next fiscal year from 1.24 last year.

“In the 35 years of the group that was the one blip,” says one person who knows the family. “In the last three or four years, the group has grown significantly. All the businesses are doing extremely well.”

Like most Indian groups, Essar is now focusing on international expansion.

The contest over Hutchison Essar, in which it surprised the market by being able to raise $25bn of financial backing from Wall Street, marks an important step in this process.

A banker from a rival camp says: “I can’t understand how Essar can get such a level of financing given its recent track record. These banks must have short memories.”

But proponents of Essar’s bid say that for any Indian company, including Reliance, the $17bn takeover tussle for Hutchison Essar is big money.

Some believe Essar, which has threatened to use a disputed right of first refusal over Hutchison’s 67 per cent stake in the company or operational rights attached to its 33 per cent minority stake to block any bid it does not approve, is merely bluffing to get a higher price out of Vodafone and Hutchison for its holding.

But whatever the outcome, the battle has helped Essar reclaim its place on India’s corporate radar.

Copyright The Financial Times Limited 2018. All rights reserved.

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