Governance issues could mar Essar IPO

David Hellier
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LONDON scored a coup as Indian industrial giant Essar yesterday said it would list its energy business on the Stock Exchange, though concerns rippled through the market over the extent of the subsidiary’s independence from its powerful parent.

Essar said it would float between 20 to 25 per cent of the energy division Essar Energy on the LSE, retaining three quarters of the equity for the group – an unusually high proportion following a public listing.

Three members of Essar Energy’s board – chairman Ravi Ruia, vice-chairman Prashant Ruia and chief executive Naresh Nayyar – also play key roles at the helm of the parent company, leading to concern among potential investors over the independence of the subsidiary’s board.

Four non-executive directors make up the remainder of the board, including Simon Murray, a director of Vodafone and luxury goods group Richemont, and Philip Aiken, chairman of recruiter Robert Walters and a board member at Kazakhmys and National Grid.

But the other two non-executives, Sattar Abdoula and Subhash Lallah, have spent the majority of their corporate careers working on the tiny island of Mauritius and have only limited international experience.

Essar Energy’s chairman Ravi Ruia stressed yesterday that the firm is currently in the process of recruiting a fifth independent non-executive, though one energy analyst yesterday told City A.M. it was paramount to ensure minority shareholders are not disadvantaged by the board setup.

“I would like to see an independent chair on the board,” he said, echoing recommendations in the Combined Code on Corporate Governance.

Essar said yesterday it would raise around $2.5bn (£1.6bn) from the listing, the largest ever overseas IPO for an Indian company.


PRINCIPAL adviser to Essar on the $2.5bn (£1.6bn) listing of its energy business on the LSE is JP Morgan Cazenove, which is acting as financial adviser, sponsor, joint global coordinator and joint bookrunner.

Foremost on the team are James Taylor, Joe Seifert and Neil Hancock from the bank’s advisory team. Taylor recently gave advice on some of London’s most prominent IPOs, including the flotation of life assistance business CPP Group, which raised £150m.

Seifert, a vice president at the bank, has formerly advised the likes of Vedanta Resources and miner Xstrata on its $5.9bn rights issue last year, while Hancock counts among past clients Aberdeen Asset Management and Sibir Energy, the controversial Russian oil group.

Deutsche Bank is acting as the other joint global coordinator and bookrunner on Essar’s flotation.

Heading up the team are Jonathan Ross, a managing director in the equity capital markets division; Edward Sankey, global co-head of equity syndicate; Alan Brown, global co-head of the bank’s natural resources group; and Rajat Katyal, a director on the natural resources team. Deutsche also acted as bookrunner on the rights issues for Rio Tinto and Xstrata last year.
Victoria Bates