Essar Oil's global float surprises analysts

Many analysts are questioning the rationale behind the $750 million overseas float announced by Essar Oil on Friday. Essar Oil plans to raise the money through issue of FCCBs, GDRs or ADRs and use it to fund expansion of its Vadinar refinery in Gujarat.

However, analysts say that the Rs 3,000 crore plus money Essar plans to raise, is half its current market capitalisation at Rs 6,000 crore. Why the company should go for such a large float when it is in process of delisting from the Indian bourses?

The move would result in further dilution of stake, which is the bone of contention. Meanwhile, the Essar Group has sought the market regulator’s permission to delist Essar Oil without having to make an open offer.

The promoters feel that since the conversion of its GDRs into equity shares would not lead to an increase in their shareholding in Essar Oil, they might be allowed to go for delisting without an open offer.

The promoters had last year purchased GDRs from foreign shareholders, representing 69% stake in the company and holds about 19% directly, making their holding a little under the mandatory 90% required to delist.