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Essar Energy buyback for a pittance

Shashi, Ravi Ruia: Share plan

London, Feb. 16: Investors will this week receive another mauling from a disastrous foreign float when a billionaire Indian family offers to buy back its company on the cheap.

The Ruias, one of India’s most prominent business dynasties, are this weekend putting the final touches to a takeover bid for Essar Energy, the power company they floated in 2010. It is thought the deal will be pitched at no more than 75 pence a share, a fraction of the 420 pence paid by investors four years ago.

The Essar collapse is another blow to the reputation of the London market, which welcomed the listing of foreign oil, gas and mining companies but has seen some investors badly burnt.

Last year, the founders of ENRC, a Kazakh miner beset by corruption allegations and boardroom bust-ups, took the company private at less than half the float price.

It is understood the offer from the Ruia family could come in the next few days. VTB, the Russian state-controlled bank, has been lined up to finance the bid. The company is expected to create an independent committee led by Philip Aiken, the senior independent director, to assess any offer.

Essar, which operates coal mines and power plants in India, employs 1,500 people at the Stanlow oil refinery in Cheshire.

Investors could have a worse experience than even with ENRC. The business admitted on Friday that Essar Global Fund, the family’s holding company, which has a 78 per cent stake, was considering making an offer at a “modest premium” to Thursday’s closing price of 60 pence for the rest of the shares.

The family will need to raise about 500 million to pay for the remaining stock and to buy out a convertible bond.

It is unclear whether the offer will be made in the form of a scheme of arrangement, which will require 75 per cent approval from non-family shareholders, or a straightforward takeover bid requiring approval from only half of the shareholders. It seems likely most investors will sell as the founders have sufficient share to overcome objections.

When it was floated, Essar was the latest in a series of foreign groups that enticed investors with the opportunity to tap into the soaring economic growth of the developing world. It quickly joined the FTSE100 roster of the biggest public companies.

Since reaching a high of 589 pence in 2010, it has lost nearly 90 per cent of its value. The company dropped out of the FTSE 100 in 2012 as it battled with delays to plant openings and Indian regulators’ demands on mines. It was then hit with demands for hundreds of millions in back taxes.

 
 
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