Essar Group to raise capital via IPO of joint venture stake with Vodafone, Reports

Reports emerged Monday that Indian steel and shipping giant company owned by the Ambani brothers, Essar Group is keen on an Initial Public Offer (IPO) to fund its investments. The reports suggested that Essar Group had talks with various banks with regard to its plans as it ponders its funding options, inclusive of an IPO for its stake in its Indian joint venture with British telecommunications firm, Vodafone.


If the company should go ahead with an IPO, it would see the venture, Vodafone Essar, being listed and thus require that the two joint venture partners approve the listing. As it stands currently, Essar Group has about 33% stake in the joint venture, Vodafone Essar that is considered India’s third largest mobile firm. Even so, the company reported that the talks were still at a preliminary stage and it had not yet appointed any banks to deal with the transaction.


When reached for comment over the emerging reports, Essar Group’s spokesperson declined to comment rather reiterating that the company policy requires that he makes no comment on market speculation. Vodafone would not give any comment as well. The reports over the speculated listing emerged firstly in Bloomberg, insinuating plans to list Essar’s stake in Vodafone Essar.


The Bloomberg report had further suggested that Vodafone was yet to settle on a response and is awaiting Essar’s proposal. Back in 2007, Vodafone acquired a stake in Hutchison Whampoa Ltd’s Indian mobile business for which Essar Group was a partner. The deal allowed Essar the alternative of selling its entire 33% stake in the telecom joint venture to Vodafone for about $5 billion to be undertaken in the period between the third and fourth year’s of the conclusion of the deal.


On the other hand, Essar had the option of disposing off shares estimated at $1 billion and $5 billion in the joint venture to Vodafone at an independent valuation. Opened in May, the sale option expires after twelve months. Essar Group had raised about 1.27 billion pounds via a London IPO of its energy and power businesses and in February, the company disposed off its telecoms tower to Tower Corp, an American company for an estimated $432 million, with another deal to follow in November in which the company agreed to purchase a majority stake in Dhabi Group’s businesses in Uganda and Congo.

19 July 2010.