 "Essar Oil: Finally, able to proceed with delisting")
Retail investors and foreign institutions have taken opposite views on the Essar oil stock since the announcement of the company’s delisting plans a little over a year before.
The number of retail investors has fallen nearly 18 per cent since June last year, touching a multi-year low of 260,000 in September. Their holding has shrunk to 7.9 per cent from the earlier 10.75 per cent, while holdings of foreign institutions inched up to 5.4 per cent from 4.1 percent. The number of foreign institutional investors holding the stock went up from 57 to 61. Seven mutual funds which hold the stock pruned their combined holding to about 1.8 per cent from the two per cent they had five quarters ago.
The domestic investor scepticism has fed on multiple complaints and obstacles the delisting proposal has faced since Essar Oil’s board of directors approved it on June 22, 2014. The move got shareholders' nod on August 6 that year. Trouble followed soon after, with the Securities and Exchange Board of India (Sebi) asking the exchanges not to clear it until they heard from the regulator.
What followed was a flurry of investor complaints and correspondence between regulator and company. The first of the complaints came to Sebi on August 14 last year. The shareholder, which Sebi did not name, alleged tactics being used by the promoters “to deny important public information about the company to its own shareholders” and that “some of the public shareholders might be acting in concert with the promoters and (seeking) to hide their identities”.
Two more complaints followed after Essar Oil informed the exchanges that promoters Essar Energy Holdings had entered into an agreement with OJSC Roseneft Oil, a Russian company, to sell 49 per cent stake. In a statement filed with the BSE, it said the agreement was non-binding and was silent on financial details, including the price at which the deal was finalised. Sebi was requested to ensure the deal price with Roseneft was disclosed in the delisting offer documents. And, that the price offered in the delisting offer should be a fair one, equivalent to the deal price with Roseneft, the complainants had said.
The company denied the allegations on operational and financial statements made by it and said there was no misrepresentation. On the Roseneft deal, the promoter said there was yet no agreement on key terms, including price, and it would provide relevant updates on the progress in the public announcement and letter of offer. Sebi considered all these and in an order this month, on November 6, allowed the company certain relaxations it sought, after the promoters undertook to compensate the minority shareholders if need be.
The company is busy taking steps to begin the reverse book building process but not everyone is happy with the Sebi order. J N Gupta, managing director, Stakeholders Empowerment Services (SES), said, “The shareholders were given a rationale that the promoters wanted full control while seeking approval for delisting. With Roseneft entering the picture, that rationale is no longer valid. That makes the resolution invalid. The company has to go to the shareholders again.” In a detailed report, raising several technical issues with the Sebi order, SES has recommended the shareholders not tender shares in the delisting offer.
It also took exception to unconfirmed news reports that keep coming on the Roseneft deal. “Shareholders can’t be kept in the dark. They cannot be allowed to guess based on unconfirmed news being published and made available. However, the track record indicates that whatever is published by a newspaper comes out in official news either immediately or with some delay, with few modifications,” SES added.
Another challenge the delisting offer could face is the doubling of share prices in the past five months. The shares were trading around Rs 100 till June and then moved up steadily, before spurting around 20 per cent after the Sebi order. On Thursday, they closed in the green at Rs 209.5 each on the NSE.
Unfazed, the company is making preparations for the announcement of the reverse book building offer somewhere in December, which will determine the delisting price. An Essar Oil spokesperson said Sebi had addressed all the issues in its latest order. “It’s a reasoned order, wherein Sebi has considered and analysed all aspects, reviewed all queries raised/views expressed by various stakeholders and finally given its go-ahead to the promoters to launch the delisting offer.”
Virendra Jain, president, Midas Touch Investor Association, recalled an earlier instance when a Essar Steel delisting offer had run into rough weather in 2007. “It is not the first time an Essar company has delisted. Each time, there is a controversy but they have (always) managed to be successful.” He said there weren't enough avenues for an investor to pursue even if he felt the regulator had erred. “Sebi's view will stand, howsoever infirm or illegal. This is a big structural flaw and the real predicament for the investor. You can keep making a noise. But, how many times has Sebi modified its order?” he asked.
The company also noted it was the public shareholders’ discretion on whether they wish to participate in the proposed delisting offer or not. And, that the delisting price is determined by the public shareholders. “There is no role played by the promoters in this process. Hence, the apprehension about the public shareholders being forced out is misplaced,” the spokesperson added. Further, Essar said, the interest of the public shareholders is adequately protected by the promoters’ undertaking on pricing of the Roseneft deal.
