Ruias consider delisting all Essar units

India's Essar Group, controlled by billionaire brothers, Shashikant and Ravikant Ruia, is considering delisting all its publicly traded units and plans to sell some assets, sources said. The Group plans to take Essar Ports, Essar Shipping and Essar Oil private over the next couple of years, according to sources, asking not to be identified.

The Ruias are already in the process of delisting Essar Energy Plc from the London Stock Exchange. Mumbai-based Essar Group wants to buy all the shares it doesn't already own in its listed units as it considers them undervalued, sources added. The conglomerate is weighing the sale of international outsourcing operations and a US iron-ore business and might sell additional assets after completing the privatisations, they said.

The Ruia brothers are overhauling Essar Group as Indian family-run companies, including Jaypee Group and GMR Group come under pressure to sell assets after racking up debt.

The units Essar Group is seeking to privatise have a combined market value of about $4.4 billion, Bloomberg data show.

Shares of Essar Oil jumped 16 percent in Mumbai trading to close at the highest level since March 2013. Essar Ports also rose 16 per cent, the most in more than two and half years, while Essar Shipping advanced 14 per cent.

As a policy, Essar doesn't comment on speculation, it said in an e-mail in response to queries on delisting and the iron ore business.

Valuation Discount

Combined borrowings at the country's top 10 business groups had risen more than sixfold since 2007 to 6.31 trillion rupees ($107 billion) by March 2013, Credit Suisse Group AG wrote in an August report. Essar Group's debt quadrupled to 984 billion rupees by the end of March 2013, from 246 billion rupees in 2007, after increasing capital expenditures across its businesses, according to the Credit Suisse report.

Essar Group said at the time "such snapshots are an unfair measure of the health of industrial groups, given they show just the costs of investments, not the future income from these investments." The conglomerate's units are refinancing "high-cost" rupee loans with dollar debt and overseas income provides a natural hedge, it said.

Essar Ports trades at 8.7 times last year's earnings, while rival Adani Ports & Special Economic Zone Ltd. is valued at 27.1 times, according to data compiled by Bloomberg. Shares of Essar Oil have tumbled 83 percent in the six years through 2013, compared with a 4.4 percent rise in the benchmark S&P BSE Sensex index.

Freezing Expenditure

The Ruia brothers have a combined net worth of $8 billion, according to the Bloomberg Billionaires Index.

After privatizing the units, the Ruia brothers plan to manage their holdings like private-equity investments and may buy or sell assets, the people said. Essar Group plans to freeze major capital expenditure for the next couple of years, according to the people.

Essar Group has spent $18 billion over the last six years and most of these investments have been completed, it said in its e-mailed statement. Essar Energy plans to invest in Essar Oil, the company said, without specifying the amount.

The group plans to sell some of the international operations of its call-center and business outsourcing unit Aegis Ltd. and is seeking an enterprise value of $600 million, the people said. The arm has operations across 13 countries including the U.S., Argentina and the Philippines with more than 55,000 employees, according to the Aegis website.

Funding Costs

Essar isn't considering a sale of Aegis and is focusing on expanding that business, it said in the e-mail statement.

The group will also consider selling Essar Steel Minnesota LLC, which is investing $1.8 billion to develop a seven-million-ton per annum iron ore pellet facility, one of the people said.

The unit raised $450 million through an offering of six-year bonds earlier this year, according to a May 14 statement.

The sale, which could take place after the facility becomes operational, may value Essar Steel Minnesota at about $2 billion including net debt, the person said.

A rise in rupee funding costs and a slowdown in economic growth to a decade low have strained the finances of Indian companies. The yield on five-year rupee-denominated corporate bonds touched 10.75 percent in August, the highest level since end-2008, from as low as 7.27 percent in April 2009, according to data from the Fixed Income Money Market & Derivatives Association of India.

Cement Plant

Jaiprakash Associates Ltd., the builder of India's only Formula One racing track, agreed to sell a cement plant in September for an enterprise value of 38 billion rupees as part of an effort to pare debt. Its energy unit, Jaiprakash Power Ventures Ltd., agreed to sell two hydropower plants in March for $1.6 billion.

GMR Infrastructure Ltd., operator of India's biggest airport, last month completed the sale of a 40 percent stake in Istanbul's Sabiha Gokcen International Airport for 17.4 billion rupees. In September, it agreed to sell a 74 percent stake in a highway project in Tamil Nadu state for 2.22 billion rupees.

Standard Chartered Plc, ICICI Bank Ltd., Axis Bank Ltd. and State Bank of India are among the largest lenders to Essar Group, according to company filings. In October, Mumbai-based Credit Analysis & Research Ltd. assigned Essar Steel's long- and short-term debt facilities of 315 billion rupees its lowest non-investment grade rating.

Recovery Unit

Standard Chartered has shifted about $3 billion of its loans to Essar Group to a unit that focuses on recovery, meaning it will need to set aside additional capital for the debt, one person said. It had transferred part of the about $400 million of debt owed by Essar Steel to its Group Special Asset Management last year, the person added.

Essar Steel "has been paying its dues to lenders regularly," the company said in the e-mail.

"We don't discuss client relationships, but we are comfortable with the shape of our portfolio in India," said Subhayu Mishra, a Mumbai-based spokesman for the U.K. lender.

A subsidiary of the Ruias' buyout company Essar Global Fund Ltd. offered in March to spend $793 million to buy the remaining stake the brothers don't already own in Essar Energy, as well as the company's outstanding convertible bonds. The Ruias own a 78 percent stake in Essar Energy, data compiled by Bloomberg show.

An independent panel set up by Essar Energy's board to evaluate the offer said this month it "reluctantly" believes shareholders should "seriously consider" accepting it, after rejecting the same offer in February as too low.

Essar Group attempted to delist Essar Oil and Essar Shipping in 2007 before dropping the plans.