VTB Capital may provide $750 mln for Essar Energy share buyback
MOSCOW. March 17 (Interfax) - VTB Capital may provide $750 million to the majority shareholder in Essar Energy, Essar Global Fund Limited (EGFL), to buy back shares from minority shareholders.
VTB Capital, which is the financial consultant for EGFL's program to consolidate 100% of Essar Energy shares, would provide $277 million to buy back shares and $473 million to buy convertible bonds.
Once EGFL acquires the shares and convertible bonds, it will de-list Essar Energy from the LSE and go entirely private, India's Economic Times quoted its own sources as saying.
EGFL acts on behalf of the brothers Shashi and Ravi Ruia. It emerged in February that the fund intended to buy back 23% of Essar and was due to post a formal offer to minority shareholders by March 14, although the deadline could have been moved back by a month.
Essar, which owns oil refining and power generating capacity in India, floated the 23% of its shares on the LSE in 2010 at 4.2 pounds a share in an IPO that raised 1.2 billion pounds, however according to unofficial reports, the company is only prepared to buy the shares back for 0.7 pounds.
EGFL said the company's declining capitalization was due to "changes in the macroeconomic, regulatory and tax climate in India." Its investment in Essar, including the shares it purchased on the market following the IPO, brought $6 billion in losses. A further decline in share values would bring fresh losses, which is the motivation for the de-listing.
The Economic Times quoted its sources as saying VTB might lend Essar Global Fund $300 million to buy back the shares and another $550 million to redeem convertible bonds.
In addition, banking sources say VTB has offered to pay off the existing lenders of Essar Energy - China Exim Bank ($300 million) and Axis ($150 million) - and transfer their $450 million exposure onto its books, the Economic Times said.
A total of $793 million will be spend on the buyback. The shares acquired will be held by VTB Capital as security.
EGFL says it currently owns 76.72% of Essar Energy and "has a stake" in another 1.3% of shares.