Breakthrough for Ruias' move: Essar Energy gets closer to delisting

Essar Global Fund's open offer gets enough shares to take holding well beyond the 80% floor for shareholder approval, despite criticism of too low a price; extends offer by another week

India’s billionaire Ruia family, which stuck to the 70 pence a share offer in its formal bid for buying out minority stake holders in its London-listed Essar Energy, has finally achieved the mandatory holding of over 80 per cent prescribed under a new rule that was to be effective from May 16. The company has now extended the offer to May 23.

“In accordance with the listing rules, the requisite notice period of not less than 20 business days for cancellation of listing of Essar Energy and admission to trading in Essar Energy shares will commence on May 12. Bidco anticipates that cancellation of listing and admission to trading will take effect on June 10,” stated the company. Bidco is a subsidiary of Essar Global Fund Ltd (EGFL), that made the offer to buy back shares. The Ruias floated EGFL and are its beneficiaries.

The move by the Ruias had run into opposition from the company’s committee of independent directors. Slamming the offer, it had asked holders of shares and bonds to take no action. The formal offer made on March 14 represented a premium of approximately 17 per cent on the closing price of 60p for Essar Energy’s share. This valued the remaining stake and convertible bonds in the company at $793 million.

Essar Energy’s assets include the Stanlow oil refinery in Northwest England, besides power stations and oil refining facilities in India. It raised £1.3 billion by listing its shares on the London Stock Exchange (LSE) at 420p apiece in 2010. Following the listing, about 78 per cent stake in the company was held by promoters and the rest was in the hands of minority shareholders. Since then, the company has had mixed fortunes, with project delays leading to a fall in the stock price to 60p a share before the formal offer. It is only now that things are looking up for some of its projects. Meanwhile, a change in regulations required the company to ensure a minimum 25 per cent float by March 2014, which would have meant a three per cent reduction in Essar Energy’s promoters.

So, EGFL in February made an informal offer to buy the 22 per cent stake in Essar Energy that it did not already own at 70p a share. It had also proposed to acquire 4.25 per cent convertible bonds due in 2016, guaranteed by Essar Energy. The offer was rejected by the five-member independent board committee and minority shareholders such as Henderson Global Investors and Standard Life, which termed it opportunistic.

EGFL followed with a formal offer on March 15, without changing the price of 70p a share. The offer to accept the shares ended on Friday. EGFL got about 8.29 per cent of Essar Energy in the open offer, taking its total holding to 86.28 per cent.

When reached, a Standard Life spokesperson said, “We have no plans to issue a statement on Essar Energy today.” The price offered by the Ruias had also faced opposition from the Association of British Insurers (ABI), one of the largest shareholder groups in the UK. ABI represents minority shareholders owning a 8.6 per cent stake in Essar Energy.

It has made a representation to the UK government and the Indian high commissioner, saying the move will damage the integrity of the UK market. In 2013 Eurasian Natural Resources Corp successfully de-listed from the LSE despite opposition from a minority on the offer price. But it prompted the UK’s Financial Conduct Authority to rework its de-listing rules. Under the new rules, to be effective from May 16, de-listing would require 80 per cent shareholder approval.