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Essar Energy launches $2.5 bn London IPO

Essar Energy launches $2.5 bn London IPO
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First Published: Thu, Apr 22 2010. 03 47 PM IST
Mumbai: Indian conglomerate Essar Group on Thursday launched an initial public offer (IPO) in its energy and power businesses to raise about $2.5 billion, said three sources with direct knowledge of the matter, in what is set to be the biggest IPO in London since 2007.
The group is selling a 20-25$% stake in Essar Energy to institutions as it looks to tap new investors to fund its ambitious growth plans, including buying coal mines to expand power capacity, and the development and exploration of oil and gas blocks.
New shares will be issued in a range of 450-550 pence each in an offering that will close on 29 April, the sources told Reuters. The sources did not wish to be named as they were not authorized to speak with the media.
Listing on the London Stock Exchange (LSE) is expected in the first week of May, one of the sources said.
The group’s energy and power operations, including four existing plants with a total installed capacity of 1,220 megawatts, will have a market capitalization of $9.5-$11 billion upon listing, the sources said.
A rush of energy IPOs in India from firms such as JSW Energy, Oil India, NHPC and Indiabulls Power in recent months, and more in the pipeline, has crowded the market, prompting Essar to look overseas.
A London listing also gives Essar access to a much deeper investor base, sources close to the deal have told Reuters.
This will be the second-largest IPO by an Indian firm -- behind Reliance Power’s $2.9 billion offering in 2008 -- and will be London’s biggest IPO since 2007 if it tops Netherlands-based New World Resources’ near-$2.5 billion raising in 2008, according to bankers and Thomson Reuters data.
It will rank as the third-largest share sale by an Indian firm, following private-sector lender ICICI Bank’s $4.6 billion follow-on sale in the United States in 2007 and the Reliance Power IPO.
Expansion drive
The offering would help expansion plans at Essar, controlled by billionaire brothers Shashi and Ravi Ruia, who are worth a combined $13 billion according to Forbes and founded Essar in 1969 following the death of their father.
They began operations by building an outer breakwater at the Chennai port and have since rapidly expanded the group, whose interests now include shipping, steel, refining, power and telecom.
The group has embarked on a string of deals, buying US coal producer Trinity Coal Partners LLC for $600 million, and the Aries coal mines in Indonesia for about $175-$200 million -- part of a strategic drive to source raw materials for its global steel and power operations.
Trinity Coal will help fuel the company’s North American steel operations, including its Essar Steel Algoma facility in Ontario, Canada.
Essar Oil, a group firm, is in talks with Royal Dutch Shell to buy three European refineries. The group would consider buying these in May or June.
Essar Oil, which runs a 280,000 barrels-per-day (bpd) refinery and owns a 50% stake in a Kenyan refinery, is pursuing the deal as part of plans to have a refining capacity of 1 million bpd.
London listing
After the share sale, Essar Energy will be considered for inclusion in the FTSE 100 index, the company has said previously. Essar Energy is incorporated in the UK, and has its registered office in London and its head office in Mauritius.
JP Morgan Cazenove is the sole financial adviser for the offer, while it and Deutsche Bank are joint bookrunners.
The Essar Group will retain a minimum of 75% of Essar Energy’s issued share capital.
Ravi Ruia, group vice chairman, will move to London to spearhead the global business, two sources with direct knowledge of the matter previously told Reuters.
In February, Essar sold its telecoms tower unit to American Tower Corp for about $432 million, and in November, it agreed to buy a majority stake in Dhabi Group’s telecommunication businesses in Uganda and Congo.
Essar is Vodafone’s partner in India’s No.3 mobile firm, Vodafone Essar. It holds a 33% stake in Vodafone Essar and holds less than 10% in another telecom firm, Loop Mobile.
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First Published: Thu, Apr 22 2010. 03 47 PM IST
More Topics: Essar Energy | IPO | LSE | Power | Shares |