Prime Hazira Set To Pick Up 49% Stake In Essar Power

The transaction, which will change Essar Power's ownership pattern, took place sometime in the first half of 1996-97 when Prime Hazira picked up 17.8 crore new shares issued by Essar Power for Rs 10 per share. This amounted to 40 per cent of Essar Power's enhanced equity of Rs 445 crore. The company is set to pick up the another nine per cent at the same price once it receives necessary government approvals.

Company sources said the FIPB has given its informal approval to the sale and permission is now awaited from the cabinet committee on foreign investment (CCFI).

This will make Prime Hazira the single-largest shareholder with 48.99 per cent of Essar Power's total equity. The Essar group, however, will continue to retain majority stake with 51 per cent.

 

The move is part of the Ruia group's strategy to shift a major part of Essar Power's equity to Mauritius where apart from getting tax benefits, Prime Hazira's stake can be sold off to foreign investors at a premium.

Sources said the selloff to foreign investors will take place only next year after all formalities regarding the the current transactions are completed and after the power plant becomes operational. So far, only 330 mw of the 515 mw plant has been commissioned and the remaining 185 mw will go on stream by January.

Essar Power has been given independent power producer (IPP) status under which various benefits currently available to foreign companies like Enron and Cogentrix are available to it. This could be used to charge a high premium when the selloff takes place.

The sources said the whole transaction was firmed up in early 1995. Financial institutions, which have three nominees on the Essar Steel board, approved the ownership structure in March 1995. However, all the decision had not been made public by the company.

"The agreements were also signed. But we couldn't proceed with it because the RBI did not allow Prime Hazira to bring in the money as the power purchase agreement with Gujarat Electricity Board had not been signed," the sources said.

The PPA was signed four months ago and the RBI allowed the first stage of the transaction to go through. Prime Hazira picked up 40 per cent making it the second-largest shareholder after Essar Steel with 48 per cent. Sources said the Essar group will continue to hold 51 per cent in Essar Power. Prime's 49 per cent could be diluted either fully or partially