Essar plans $2.5-bn London listing for energy business

This would be the largest overseas IPO by an Indian company.

Ruias-owned Essar Energy today announced plans to raise about $2.5 billion (over Rs 11,250 crore) through an initial public offering (IPO) of shares in the UK. This would be the largest overseas IPO by an Indian company.

Essar Energy, a holding company for the group’s power and oil businesses, plans to offer a 20 to 25 per cent stake to investors in the UK and list the shares on the London Stock Exchange. It would be also London’s biggest IPO since 2006.

The Essar Group, with businesses across steel, oil and gas, power, communications, shipping, ports and logistics and construction, has annual revenues of $15 billion. The group is controlled by billionaire brothers Shashi Ruia and Ravi Ruia. ranked fifth in Forbes’ list of wealthiest Indians (November 2009), with a combined net worth of $13.6 billion.

Proceeds from the IPO will be used for the expansion of the group’s power, refinery and oil and gas exploration projects. JPMorgan Cazenove and Deutsche Bank AG are the joint global coordinators for the issue.

Prashant Ruia, vice-chairman of Essar Energy, in a media conference call said, “Essar Energy is a low-cost, Indian-focused energy company with an established track-record. As a result, we believe that Essar Energy is well-positioned to take advantage of India’s growth story. India’s strong projected macroeconomic growth is expected to result in high growth in the demand for energy. We believe that international investors are keen to access the Indian growth story through a company supported by strong governance and Essar Energy offers exactly that.”

Two-thirds of the IPO proceeds would be invested in Essar’s power business and one-third in oil and gas.

The group has four power plants with a total installed capacity of 1,220 Mega watts. It plans to take the total installed and planned capacity to 11,470 MW in the four years in two phases — six plants under construction to increase capacity to 6,100 Mw by 2012 (Phase I), and six plants under development to increase capacity by an additional 5,370 Mw by 2014 (Phase II).

The Essar Group bought West Virginia-based Trinity Coal Corp for $600 million in March. That was followed by the purchase of the Aries coal mines in Indonesia to secure fuel supplies for its power plants.

The company has 14 exploration blocks in India, Nigeria, Vietnam, Australia, Indonesia and Madagascar, including one coal seam gas block in Rajmahal India, for which Essar Energy has been declared provisional winner.

Essar Oil is expanding the capacity of its refinery in Gujarat, from the present 10.5 million tonnes per annum (mtpa) to 18 million tonnes by March 2011, Ruia said. The group further plans to expand capacity to 36 mtpa depending on market conditions. Essar Oil has a network of nearly 1,300 franchisee petrol stations across India. Essar Oil is listed on the Bombay Stock Exchange and gained 3.2 per cent to reach Rs 150.4 on the exchange following the announcement.

Essar has so far invested over $2 billion in Essar Energy’s business before the offer. As of December 31, the company had total assets of Rs 8,016 crore and net debt of Rs 3,038 crore. For the nine months ending December 31, the company had revenue of Rs 5,655 crore and net profit of Rs 120 crore.

The company however, would not use the IPO proceeds to fund the share sale to buy the refineries Ruia said. Naresh Nayyar, CEO, Essar Energy said there was no certainty on the acquisition of Shell’s refineries in Stanlow in the UK and Hamburg and Heide in Germany. “We have not entered into any binding agreement as of now. We are still in discussion with Shell and a decision will be taken on this post IPO by the board of Essar Energy,” Nayyar added.