Essar Group to delist Essar Ports, Essar Shipping3 min read . Updated: 14 Oct 2014, 01:16 PM IST
Lack of investor appetite and the promoter group's need for increased flexibility cited as reasons behind delisting
Mumbai: The Essar Group plans to delist two of its units—Essar Shipping Ltd and Essar Ports Ltd—from the bourses, citing lack of investor appetite and the promoter group’s need for increased flexibility.
Both companies will seek the consent of shareholders through a postal ballot and electronic voting.
Investors cheered the news. On Monday, shares of Essar Ports rose 18.2% to ₹ 108.15 while Essar Shipping rose 20% to ₹ 23.70. The benchmark Sensex ended at 26,384.07 points, up 0.33%.
In a separate filing, Essar Shipping said the board of directors has granted approval for a proposal to voluntarily delist the equity shares of the company held by Essar Shipping and Logistics.
The promoter group holds 75% of the stake in the company, while 25% is held by the public.
Besides Essar Ports and Essar Shipping, the Essar Group is also in process of delisting Essar Oil Ltd, the flagship of the $39 billion Essar Group. The board of Essar Oil approved the delisting plan in June this year.
The Ruias-promoted Essar Group has already delisted Essar Energy Plc from the London Stock Exchange.
The decision to delist companies is an investor-unfriendly move by Essar Group, according to J.N. Gupta, a former executive director with capital market regulator Securities and Exchange Board of India and currently head of Shareholders Empowerment Services. Gupta said the Essar Group had built group companies with the help of public money during tough times. The group is unwilling to share the prosperity with shareholders when the companies are ready to do so.
But the group does not agree.
The promoters believe that the delisting of the shares of Essar Ports from the stock exchanges will provide the promoter group increased flexibility to support the business and financial needs of the company and enable it to optimally fund the growth initiatives of the company, an Essar Group spokesman said.
Essar Shipping’s promoter believes that there is a general lack of investor appetite in the sector for various reasons, including a slowdown in freight market and the cyclical nature of the industry, the spokesman said.
“The promoter believes that the delisting offer is in the interest of the public shareholders as it will provide them an exit opportunity from the company at a price determined by the prescribed regulations," he said.
Essar Energy Holdings Ltd, the parent of Essar Oil, believes that the company requires sustained, substantial investments to develop and grow its business, especially refining and marketing, and full ownership will provide it with increased operational and financial flexibility to support business and strategic needs.
“Essar Group companies have been one of the biggest wealth destroyers over the past 10-15 years. This is one reason why no institutional or retail investor will invest in Essar companies for a long while," said Shriram Subramanian, founder and managing director at proxy advisory firm InGovern Research Services Pvt. Ltd.
“There is a huge reputation risk in investing in any Essar Group company. It is only fitting that Essar Ports and Essar Shipping are no longer listed and all Essar Group companies remain unlisted," Subramanian said.
There is no further scope of investment in Essar Ports and Essar Shipping and hence the group must may have decided to delist to enable them to search for investors for private placement, he said.
“But who will invest in these companies is a big question," said Subramanian.
The current situation has arisen because of a clear lack of interest from the current set of shareholders to commit further capital in the business, according to Sandeep Upadhyay, senior vice-president, infrastructure solutions group, Centrum Capital Ltd, a merchant banker.
“The delisting option may, however, on one hand provide for a much-needed exit to the existing shareholders and at the same time ensure more flexibility in raising funds for promoters in a capital expenditure intensive business," Upadhyay said.