Essar Energy prices London IPO below initial range

Despite the price reduction, the Indian company raises $1.95 billion in the largest London listing since December 2007.

Essar Energy, the private sector Indian company with interests in the power and oil and gas sectors, lowered the offering price of its London IPO early on Friday morning to a fixed price below the initial range and said it would keep the books open for another day. The deal was completed later that day at the new price of £4.20 per share, resulting in a total deal size of £1.273 billion ($1.95 billion).

Even at the reduced size, however, this is the largest ever Indian company to list in London, dwarfing Vedanta Resources' $878 million listing in 2003. It is also the largest primary offering in London since December 2007 when Kazakhstan's Eurasian Natural Resources raised $3 billion.

The company had originally hoped to raise up to $2.5 billion by selling 20% to 25% of the company to institutional investors and initially offered its shares at a price between £4.50 and £5.50 apiece. The lowering of the offering price on the morning when the deal was initially due to price not surprisingly led to talk in the market that the deal wasn't covered, or that there was a lot of price sensitivity among key institutional investors. However, people involved in the transaction claimed this was not the case, and said the price reduction was a reflection of uncertain and volatile conditions in global equity markets.

Indeed, in a statement filed with the London Stock Exchange, Essar Energy's vice-chairman, Prashant Ruia, said the offer "was fully subscribed within the price range initially announced. However, as this was our debut offering and given current market conditions, we decided on a small reduction in price for our new investors".

One source also noted that the lowering of the price and the extension of the offering by a day resulted in only one additional investor coming into the deal and made little difference to the overall structure of the order book. In all, the majority of the demand came from long-only accounts.

In a joint comment, Shashi Ruia, chairman of Essar Group, Ravi Ruia, chairman of Essar Energy, noted that the deal attracted "a broad range of high-quality blue-chip international institutional investors" which they said showed a "very high interest in the Indian growth story and confidence in Essar Energy's ability to meet the growing need for power, oil and gas in India".

The uncertainty surrounding Greek's debt situation has added to an already difficult IPO market in Europe this year with several issuers have been forced to downsize or pull their offerings due to weak demand from investors. The day before Essar Energy decided to reduce its price, Russian fertilizer maker UralChem Holding postponed its planned London listing that had sought to raise up to $642 million, reportedly after failing to secure a sufficient amount of orders. According to data provider Dealogic, this means five IPOs targeted for the London Stock Exchange have now been either withdrawn or postponed this year, compared with eight deals that have priced.

Essar Energy, which is owned by India's Essar Group, a diversified conglomerate whose businesses also include steel, communications, shipping, ports, logistics, construction and metals and mining, said it sold approximately 303 million new shares, or 23.24% of its enlarged share capital. The remaining 76.74% are still owned by Essar Group. If the 10% overallotment option is exercised in full, the parent's stake will fall to 75% and the total proceeds will increase to about £2.14 billion.

Essar Energy will start trading on a conditional basis on the LSE tomorrow and unconditional dealings are expected to take place from May 7. The deal was arranged by Deutsche Bank and J.P. Morgan Cazenove. 

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