In the largest ever IPO by an Indian company on the main board of the London Stock Exchange, Essar Energy plc raised GBP 1.3bn and started trading on 7th May 2010.
The listing was sandwiched between euphoric and gloomy sentiments. The euphoria clearly emanated from the Indian camp given the major feat that they had just achieved. Not only was this by far the biggest Indian IPO overseas but also the second largest Indian IPO ever. The rather somber mood was resonated by the investor camp which clearly worried about the larger impact of the Greek fiscal crises.
In order to appease the investors and more importantly see the IPO through the management of Essar Energy decided to cut its offer price to 420 pence down from the price range of 450 to 500 pence. Further on the trading day the stock fell about 5.6% on the opening day. Not quite the performance investors and company management expects on the opening day, but with the investment climate the way it was any company would settle for getting the IPO through the door.
Cooling towers at Essar’s power plant at Vadinar, Gujarat, India
Source: Essar Energy plc
Essar Energy set up a company in the UK that then owned much of the group’s underlying energy assets in India and elsewhere. “This is a rather attractive structure for a number of Indian companies to raise capital from overseas sources as investors there are not averse to investing in hold-companies as opposed to direct asset exposure”, says Shameek Chaudhuri, a partner specialising in capital markets at AZB Partners, an Indian law firm.
“The fact that it is a UK entity, irrespective of where its assets are, allows almost all institution to invest in the IPO. If the company came to the market as the Indian entity then it may find itself facing a much narrower pool of investors with their investment restrictions”, Shameek further added.
London will continue to remain a fairly attractive market for companies operating in the energy, mining and extractive industries. With India’s infrastructure and energy requirements going through the roof, the LSE is an attractive proposition for Indian companies to raise capital. However startups should hold their horses as they are unlikely to find the investor traction and more importantly the valuations they are seeking. The home markets will give them a far better pricing, but for seasoned companies with a few years of track record under the belt, investors in Europe are very much waiting for opportunities to invest in such growth stories.
The company’s last trade on 17 May 2010, ten days after its launch was at 416.50 pence and it will join the FTSE 100 index at the time of the next re-shuffle scheduled for June 2010. The company also recently signed a power purchase agreement for 800 MW with Gujarat Urja Vikas Nigam Limited (GUVNL) through its subsidiary, Essar Power Gujarat Ltd.