IiAS has advised investors to vote for the delisting of Essar Oil and actively participate in the price discovery process.
Essar Energy Holdings, Mauritius, part of the Essar Energy Group, plans to acquire the outstanding 13.7 crore shares of Essar Oil. The floor price has been set at Rs 108.18. At this floor price, the Essar Group will need to spend Rs 1,480 crore to acquire all outstanding shares. The delisting of Essar Oil follows the delisting of the parent company, Essar Energy Plc, from the UK stock exchanges. The Essar Group plans to take its entire hydrocarbons business private.
The delisting price is over 6x the book value. The shares are trading at a P/E multiple of around 120x. “These multiples are significantly higher than industry peers. But the company has just begun to report profits from a two-year loss period, therefore, investors need to question whether the delisting price captures the potential of improved performance,” said the IiAS report.
IiAS says it expects Essar Oil's board to confirm tha the company will stand by its reasoning for delisting and neither do a private place/strategic divestment in the next three years nor re-list on any public stock exchange in next five years.
A resolution for delisting is passed only by a two-thirds majority, which means that for every onevote against the resolution, there needs to be two votes for the resolution. Promoters cannot vote on this resolution. “In Essar Oil case, every outstanding share will have 3.6x times the power to decide the fate of the delisting resolution,” the report said.
Essar Oil’s credit protection steps are weak, reflected in consolidated debt-equity levels of 8.5x and debt-Ebitda levels of over 5x for the year ended March 31, 2014.