LIC will never go Public & Essar Oil wants to go Private ! ~ What is the Connection !?

LIC will never go Public & Essar Oil wants to go Private ! ~ What is the Connection !?

Corporate Governance….rather the lack of it !

In January 2010 LIC picked up a huge Equity Stake in Essar Oil from Matterhorn in a NSE Deal

LIC picked up 2.21 cr shares or 1.83% Equity Stake in Essar Oil at Rs 140 in a Rs 309 cr Block Deal on NSE on January 22,2010

I had blogged on this LIC Deal too on January 25,2010

Shareholding Pattern reported by Essar Oil right from March 31, 2010 to the Exchanges does not show LIC as a Public Shareholder with a stake of 1% and above !

And is this how LIC ,apart from supporting the Government sell offs,goes about it’s Investments in Non Government listed companies too  and expends Rs 309 crs of our Premium Monies !!! ?

If LIC is privatised or comes out with an IPO  and yet remains a  Government Entity in substance if not in form,the standard of Corporate Governance will be challenged ferociously with Shareholders demanding more accountability,transparency and disclosures…rationale of such deals will then be a matter for open criticism,accusation,suspicion and debate

Will they let LIC ever go Public ! ? Nah ! Too many Skeletons !….I daresay it’s like  a Parking Lot…actually a Car Dump…or should I say Shares Dump !

….and LIC Chairman S K Roy reportedly has strongly conveyed to the Finance Minister why LIC should not be listed !

Have a Look !…the share Price of Essar Oil has never really again touched LIC Purchase Price of Rs 140  in the last four years and five months to date since their investment except for a brief few days in January & April of 2011  !…This is on BSE…Share Price is in Rs

Year

Open

High

Low

Close

2010

140.60

162.45

115.05

137.70

2011

138.50

147.80

45.10

50.10

2012

50.70

73.75

44.80

70.25

2013

70.95

96.15

46.05

54.50

2014

54.40

119.30

44.50

108.40

….The High of Rs 162 was reached earlier in the month than the LIC  Deal on January 22, 2010 and some price range stability and even marginal buoyancy was seen till mid 2011…and it’s been dropping since to a low of even Rs 44.50 this year in 2014….It closed the Month below or around Rs 50 in January to March 2014 this year…April 2014 saw a closing of Rs 60 before May 2014 took it away higher to Rs 90…It now is Rs 108.40 as on Friday June 20,2014

Strong Delisting Moves have obviously been known to Insiders from May 2014 and the Price has since moved past Rs 100 to close Friday at Rs 108.40 on BSE

Funny really…actually not so funny really !….that the Company responded just a month ago on May 21,2014 to a BSE query on whether there was substance to the ‘Essar Group Companies to Consider Delisting’ Coverage that a Stock Channel had broadcast….The Company clarified to BSE  that they had not received any communication/proposal from the promoters of their intention to delist   …..why could not BSE & NSE have followed up or drafted the query to cover all delisting awareness angles !? Of course they had not received this…it came later (see below)…but surely they knew !….how else did the Stock Channel know !?

And Essar Oil has informed BSE on Friday,June 20,2014 that they have received a delisting proposal from the Promoter Essar Energy Holdings Ltd on June 20,2014 and a Board Meeting will be held on Monday,June 23,2014 to decide on this !

Wow !

Does LIC yet hold shares of Essar Oil they bought at Rs 140 in January 2010 !?…they got a nominee on the Board so they should… Will they protect the Promoters or fight for the over 355000 Minority Shareholders !?…will they prevail over the Promoters to delist at a huge premium to the Friday Closing of  Rs 108.40 !?…remember their purchase price  is Rs 140 in January 2010

The Promoters hold 90.54  % of the Equity of Rs 1449.52 crs (FV Rs 10) through straight holding of  24.90 % and 65.64%  through Global Depository Shares held by Bank of New York Mellon

At Rs 108.40 the Market Cap is over Rs 15700 crs or US $ 2.6 Billion….Buying out at Current Price the 9.46% held by Non Promoters will cost the Promoter just @ Rs 1500 crs….The FY 14 EBIDTA is Rs 4703 crs on Income of @ Rs 107000 crs  on a record annual throughput of 20.23 MMT!…Here is the FY 14 Perfromance Release of May 20,2014 to the Exchanges

Essar Oil owns the second largest Private Refinery in India at Vadinar with a 11.8 Complexity and which operates at over 100% of it’s 20 MMTA Capacity after expansion in June 2012….It has over 1600 Essar Brand Retail Outlets all across India……It has onshore and offshore oil & gas blocks with 1.7 billion barrels of oil or oil equivalent reserves and resources

The Company was in a CDR from 2004 and received approval to exit only in August 2012 and completed the process in April 2013….so it has set up it’s assets  and expanded the Refinery from 10.5 mmtpa with 6.1 complexity to 20 mmtpa with High 11.8 Complexity with huge support from all the Indian Banks & Lenders and Debenture Holders and over 355000 shareholders

Now when the Going is Good and expected to get better Essar Oil Promoters seeks to delist and throw out 355000 shareholders !

This is what Essar Oil Chairman ,Prashant Ruia,Next Gen of Founder Brothers Ravi & Shashi Ruia, asserted in his Message in the FY 13 Annual Report last year

“Going forward we are committed to delivering superior stakeholder value…..we are confident of displaying a stronger growth in the coming years to maximise shareholder value “

Wow ! How !?…by Delisting  just as the Going is getting Better after Refinery has been expanded to 20 MMTA just two years ago and ran at over 100% Capacity in FY 14 !? 

SEBI & the Exchanges & the Big Non Promoter Shareholders like LIC must not allow this !….do they have any serious control on this though ! ?….at least ensure the delisting should burn a hole in the Promoter Ruias pockets big time

Ruias have opted not to  embark on the mandatory exercise of trimming their stake to the maximum 75% of the Equity ! …they have opted for delisting….How will this be done ? Will they offer a Fixed Price or let the Price be discovered on the Exchange !?…we should know on Monday,June 23,2014 or latest by next day Tuesday,June 24,2014   

Of Course the Ruias will fake concern that the Consolidated Book Value at March 31,2014 was just Rs 18 and Long Term Borrowings were  Rs 14285 crs ,nearly 6 times the Networth of Rs 2468 crs….and they’ve just made a marginal profit …. But they’ve build the Vadinar Refinery with Net Fixed Assets shown at  Rs 24372 crs …and their 20 MMTA Vadinar Refinery with a top complexity 11.8  is running over 100% Capacity with good Current Price  Gross Realisation Margins of US $ 7.98/bbl in FY 14…In fact Q 4 FY 14 they recorded US $ 10.12/bbl GRM….EBIDTA is above Rs 4000 crs and only Interest & Depreciation and interestingly over Rs 1200 crs of Exceptional Fx loss sliced off the profits…..Thus going by the higher Q 4 FY 14 GRM and non repeat of  such Fx Loss one can expect FY 15 to record a PAT of Rs 1500 crs to Rs 2500 crs…that’s an EPS  Range of Rs 10  to Rs 17….and what’s the value of the estimated 1.7 billion barrels of Oil Equivalent reserves they boast of ?

In this context Giant Reliance Industries has a 4x more turnover than Essar Oil….crossed Rs 450000 crs  in FY 14 on 68 mmtpa  Refining.Petrochemicals and Retailing business with Exports @ 70% of the Sales….PAT was Rs 22000 crs giving an EPS of Rs 68 and at current share price of Rs 1037 giving a PE of 15…Reliance’s  Jio 4G and Digital  Rs 70000 crs Telecom Venture is set to roll out fully in 2015 and should transform the Balance Sheet

And Check out the whole Host of Essar Oil  Bankers who have lend to them…all Indian….should one read too much into this ! ?…they are stakeholders too but their interests are unlike those of  minority shareholders…cannot expect them to weigh in for a higher delisting price unless they too are direct shareholders or have an equity exposure through their Group’s Mutual Funds

I have never been a fan of the Ruias for this very reason of Corporate Governance Issues that even got them into serious trouble in the ongoing  2 G Telecom Scam Investigation

Also Ruias made a Life Changing killing when they sold their 33% Stake in Vodafone Essar to Vodafone for over US $ 5 Billion ! in June 2011…In 2007 Vodafone had picked up the 67% stake of Hutchinson Whampoa,,,,Ruias had been one of the early entrants in the Telecom Space in India way back in 1995 in their private capacity…why not through any Essar Group listed entity !?…and where did they get the funds to invest in the Telecom Space when they were facing challenges in Essar Oil & Essar Steel !?

Need Monies !? Public are Suckers !….Minority Shareholders after all are a Minority !…..Make Monies ! Keep it Private !…seems to be the Mantra here !

Though I had spotted Essar Oil as a SS 3 Multibagger at Rs 3.90 way back in 2003/4 when I read one early morning in the Times of India a small Box item on the Business Pages that IndianOil will supply Oil to Essar Oil to sell at it’s retail outlets…till then Essar Oil was facing huge issues in setting up the Vadinar Refinery with defaults on huge loans and suspicion of diversion of Funds…they had received Marketing Rights too but the Government had said that they would issue an NOC for Marketing only if Essar Oil could show they had a continuous supply of petrol & diesel to sell at their outlets…They managed the IndianOil tie up for this….the Share Price began spurting almost immediately on this news and the Ruias quickly arranged a meeting and get Debenture Holders to agree to a long moratorium after they had already suffered many years of default

…and they want Retail Investor to come back to be sucked again !…don’t expect those who should be protecting  Investor interests and addressing Investor grievances to actually do so….often I wonder if these guys really have a clear conscience and will when they owe their positions and jobs to others who dictate their actions….and the media plays to their egos !

Humming the Abba Classic…I love Abba…grew up on them…. “Money Money Money…It’s a Rich Man’s World !”

Update ~ 10.42 am Monday Morning,June 23,2014

As expected Essar Oil is on upper circuit of @ 5 % on BSE at Rs 113.80

More important is that the Board Meeting scheduled for today has already been held yesterday on Sunday (change notified on June 21,2014 to the Exchanges) and has approved the delisting proposal and will now seek consent from shareholders through postal ballot as notified today to the Exchanges

Neither my Clients nor me hold any shares in Essar Oil but just curious who all attended the Board Meeting yesterday from the following Directors and was there any dissent from the Independent Directors as highlighted in Green or did they too gave the go ahead or did not attend !

 Mr. Prashant S Ruia — Chairman ……………………………………………………………………………………………………………………………………………….
 Mr Naresh Nayyar — Deputy Chairman
………………………………………………………………………………………………………………………………………………….
 Mr Sushil Kumar Maroo — Director
………………………………………………………………………………………………………………………………………………….
 Mr Lalit Kumar Gupta — Managing Director and CEO
………………………………………………………………………………………………………………………………………………….
 Mr Chakrapany Manoharan — Director (Refinery)
………………………………………………………………………………………………………………………………………………….
 Mr Dilip J Thakkar — Director 
………………………………………………………………………………………………………………………………………………….
 Mr KN Venkatsubramanian — Director 
………………………………………………………………………………………………………………………………………………….
 Mr. VS Jain — Director 
………………………………………………………………………………………………………………………………………………….
 Mr. Rajiv Pal Singh — State Bank of India – Nominee 
………………………………………………………………………………………………………………………………………………….
 Mr R Sudarsan — LIC of India, Nominee 
………………………………………………………………………………………………………………………………………………….
 Mr Suneet Shukla — IFCI Limited, Nominee 

 

8 thoughts on “LIC will never go Public & Essar Oil wants to go Private ! ~ What is the Connection !?

  1. Hi,

    Nicely Presented. I agree with you that , There are severe issues of Corporate Goverance with Ruias.

    I would want to highlight few more points here :

    a) Essar Oil has recently converted shares in GDR @ 140 & 153. Would they be compelled to bring open offer price above this price ?

    b) In 2007 essaroil went for delisting, they also secured shareholders not for it, but they backed out as the price of Essar Oil Shooted up. At that point (When They were in CDR), The went on records to say that The value of Essar Oil is minimum Rs 200/- in 2007. Also SEBI did not go after it, though they got away from delisting.

    c) As far as their holding so, They delisted Essar Teleholdings at pittance (@5000/-) compared to its intrinsic value. Also true for Essar Tel @ app 62/-.

    Regards

    Jigam

  2. Essar Steel was also delisted just when the steel cycle was turning.

    This is a pointer that the Oil & gas space will boom over the next few years ! Time to build positions in Reliance, HP/BP & ONGC ?!

  3. It’s like what u dreaming or searching for answers, you get it, Always I am curious to know why Sahara Group (before Subrata Roy arrest) and Essar Group Companies always going to de-list route.
    Greatly explained.

  4. Now the delisting offer is out, let’s see whether LIC do honesty by atleast getting 20% annual return & tendering shares at 290. Let’s see how they use my premium money.

    1. Good Perspective Vikas but highly unlikely that LIC will do so at Rs 290….even the SEBI November Order that cleared this delisting is not complete…..in fact SEBI should have cleared delisting only after Rosneft ddeal price was declared…..check my recent blogpost on this and questions i’ve raised… the LIC director refused to talk to us when we wanted to confirm the situation in 2014

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