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Essar flotation warning may rattle Shell Stanlow Refinery workers

Essar Energy’s own advisers have warned investors about “a complex structure and a lack of clarity on the flow of funds between the UK unit and its Indian subsidiaries” – ahead of the company’s flotation.

DAILY TELEGRAPH

Advisers warn of risks in Essar Energy flotation

Essar Energy’s own advisers have warned investors about “a complex structure and a lack of clarity on the flow of funds between the UK unit and its Indian subsidiaries” – ahead of the company’s flotation.

By Garry White and Richard Fletcher
Published: 6:00AM BST 15 Apr 2010

The oil and power company unveiled plans for a $2.5bn (£1.6bn) London flotation last week. The deal will be the City’s largest public offering in four years.

In pre-marketing research, seen by The Daily Telegraph, JP Morgan Cazenove raises a number of concerns about corporate governance.

The investment bank – which is joint book runner alongside Deutsche Bank – also warns of a history of high-profile delays and cost over-runs at the group’s Vadinar refinery in Gujarat. A timely and on budget execution of the next phase was very important to “banish concerns about project execution capabilities and fully restore reputation“, wrote the analysts.

In a separate note, Deutsche Bank warn that the company could also be a hostage to currency movements, with a 10pc depreciation in the Indian rupee against the dollar resulting in a 10pc fall in its sum-of-the-parts valuation.

The company is the second largest Indian power generator and the country’s second largest oil and gas business.

However, JP Morgan goes on to argue that the company’s growth plans chimed well with India’s growing demand for energy and the current very low energy consumption per capita ought to grow significantly in the near to medium term.

Just 44pc of Indian households have access to electricity and the country’s per-capita consumption is 610 kilowatt hours, compared with 2,346 in China.

The company also has a “simple and clearly-defined expansion strategy in both the power and oil and gas segments”, JP Morgan said.

Billionaire brothers Ravi and Shashi Ruia will sell a 20pc to 25pc stake in the group, which will be the largest ever overseas IPO by an Indian company.

Essar’s power unit will be 100pc owned by London-listed Essar Energy, with the company owning 89pc of Essar Oil. The remaining 11pc of the oil division is currently listed on the Bombay Stock Exchange, On Tuesday, Essar Oil posted a profit of 1.8bn rupees (£26.3m) in the quarter ended March 31, compared with INR6.6bn in the same period last year. Sales rose 54pc to 104.5bn rupees.

Over the full-year, Its Vadinar refinery had a gross refining margin of $4.38 on each barrel of oil processed, compared with a margin of $7.69 in the previous year, as the industry was hit by falling demand. “We are hopeful that the refining business is gradually coming out of the doldrums,” Essar Oil Managing Director Naresh Nayyar said.

SOURCE ARTICLE

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