Essar Oil's delisting offer: Should you respond?

Exiting at current levels on the bourses seen as a better option

The Essar group in its efforts to delist Essar Oil from the exchanges by acquiring non-promoter shareholding of 28.54 per cent has decided on Rs 146.05 as the floor price. Though the floor price is in accordance with the norms, it is much below the stock's closing price of Rs 210.15 on Friday. According to the new norms, the floor price cannot be less than the average of the weekly high and low closing prices in the 26 weeks preceding the date of the delisting. The promoters have chosen the higher of this method and the average Foreign Currency Convertible Bond (FCCB) conversion price (two tranches totalling $262 million at prices of Rs 138 and Rs 153 - weighted average Rs 146.05) to arrive at the floor price. While investors can tender shares and quote higher prices, it is not necessary that the promoters will accept the price and the offer. Based on a reverse book-building process, a discovered and an exit price will be arrived at, following which the promoters will decide whether the offer is acceptable or not. In the interim this raises uncertainty on the price and acceptability. Thus, some experts suggest selling on the bourses is a better idea, given the share price run up.

The stock languished at Rs 100 levels in June has gained significantly after the buzz of Russian oil major Rosneft acquiring stake in Essar Oil. In July, Essar signed a contract with Rosneft on oil imports and extending the scope also signed a non-binding agreement where Rosneft will be buying up to 49 per cent stake. This led to the street becoming optimistic on valuations of the deal and hopes that the debt of about Rs 25,000 crore will be cut. While debt and interest costs have been an overhang on the stock, even as operational performance of refinery companies is improving with uptick in refining cycle, feel analysts.

Not surprisingly, the stock has more than doubled from lows of Rs 98 in June to Rs 211.65 on Monday.. Ambreesh Baliga, an independent market expert, thus feels the offer price will be revised by the company for shareholders to tender. Sensing this, the stock has appreciated further on Monday. For now, the Street will be watchful of the price and valuations Rosneft pays to acquire stake, before deciding on tendering their shares.

However, since the current share price is largely factoring in the Rosneft deal and now there is uncertainty over delisting, investors would be better off liquidating their holding on the exchanges at these levels, feel experts. Says Baliga, investors are getting double the price compared to a year back so they can exit the stock at a suitable opportunity on exchanges itself.