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Essar group to consolidate their holdings under Essar Global

Essar Oil is also getting delisted from the Calcutta Stock Exchange. At the current price, the effort will cost around Rs 1,700 crore, report Indulal PM and Arun Kumar.

india Updated: Jan 26, 2007 01:29 IST

The Ruias of Essar group is moving ahead with the plan of consolidating their holdings under Essar Global-a firm based in Cayman Islands. The group on Thursday announced its plan to delist Essar Steel and Essar Oil from stock exchanges.

Mauritius-based Essar Steel Holdings Ltd and Essar Energy Holdings Ltd, which own majority stakes in Essar Steel and Essar Oil respectively, have sought delisting of shares from the Bombay Stock Exchange and the National Stock Exchange.

Essar Oil is also getting delisted from the Calcutta Stock Exchange. At the current price, the effort will cost around Rs 1,700 crore.

However, industry experts feel that the group will have to fork out upwards of Rs 2,500 crore, as the price for delisting will be decided through a reverse book-building process.

Under the book-building process, the shareholders will tender the shares at their expected price and the final price will be decided as the average price.

The boards of directors of both the companies are scheduled to meet on January 30 to discuss the proposals, said a company spokesman.

Essar Global holds majority stakes in Mauritius-based companies that own majority shares in the group's shipping, steel, oil & gas, power telecom and construction companies.

Sources said that group would look for global listing of Essar Global once the restructuring is over.

Analysts say that Essar Global will have a valuation of $12-15 billion. This includes its 33 per cent stake in the telecom joint venture Hutchison Essar. 

The consolidation of all the companies under a single entity would also help bolster valuations, according to investment bankers. 

The valuation of the group's listed companies is lower due to significantly larger promoter holdings.

Essar Steel, with a promoter holding of 87 per cent, has a very low valuation as compared with the Tata Steel's valuation $800-$900 per tonne, said a Mumbai-based analyst.

"The company's valuations are not very realistic as promoter holdings are very high," said a Mumbai-based investment banker.

"The delisting will bring in greater efficiencies and provide an exit opportunity for the shareholders of the Essar Steel," said a release from the Essar group.

Essar Steel is the largest integrated producer of steel in Western India, with a capacity of 4.6 million tonnes per annum. And it plans to set up manufacturing facilities in Qatar, Sharjah and Trinidad.

Investment bankers feel that the group will fetch better valuations if it wants to rope in a strategic partner for some businesses.

The Ruias are actually replicating a model that is successfully executed by the Agarwals of Sterlite and other family-owned business groups.

Large business groups like the Aditya Birla group have consolidated its stakes under a single entity to avoid cross-holdings which were a product of the licence raj.   

Anil Agarwal group had first shifted their holdings to Mauritius-based investment company-Twinstar Holdings.

Vedanta, which is now listed on the London Stock Exchange, holds majority stake in Twinstar holdings, which has controlling stake in Sterlite Industries. Vedanta now has a valuation of close to $2 billion.