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When Essar Energy announced plans to delist from the London Stock Exchange early this year, shareholders, as well as the market, had inkling the delisting of Essar Oil, the company's Indian subsidiary, wasn't far away.

Six months later, when Essar Energy confirmed the plans, analysts and investors are a worried lot. Analysts say the Essar Group has been following a policy of delisting just when its businesses begin to record substantial upside, denying shareholders their share of decent returns. In the past three financial years, Essar Oil has recorded losses in two - INR 1,180 crore in 2012-13 and INR 1,285 crore in 2011-12. The company recorded a profit of INR 126 crore for 2013-14.

Now, Essar Oil plans to buy back 137 million shares, or 27.5 per cent stake, held by the public. Its stock has outperformed the Sensex in the past three months. Following the company board approving the delisting on Monday, the stock closed at INR 113.8.

Stating the rationale behind the delisting, the company said, "Essar Energy Holdings Ltd believes the company requires sustained, substantial investment to develop and grow its businesses (especially the refining and marketing business). Full ownership of the company will provide Essar Energy increased operational/financial flexibility to support the company's businesses and strategic needs."

An analyst at a domestic brokerage said, "Major capex plans of Essar Oil are over and the stock has recovered. The company has never paid dividend. This year, it has reported a profit and if the stock retains its growth, the company will have to reward shareholders. Delisting is the best option to deny shareholders the due."

Responding to a query, an Essar Oil spokesperson emailed: "The company's resources were deployed in completing projects and meeting the sales tax liability, which restricted its ability to reward shareholders. In the absence of any distributable profit, the company could not pay any dividend. Essar Oil has issued its shares to the public at a price of INR 45/47.5 (face value of INR 10 each) a share. Essar Oil shareholders have got appreciation in value of their holdings. Since the beginning of the financial year (2013-14), Essar Oil's share price has more than doubled - from INR 51.6 to INR 113.8 as of June 23."

The company is engaged in exploration and production of oil & gas, as well as refining and marketing. It operates a 20-million-tonne-a-year refinery. For the quarter ended March, the refinery recorded a strong gross refining margin of $10.12 a barrel. The company has a pan-India network of 1,400 retail outlets, with an additional 200 under various stages of commissioning. The company also has five coal bed methane blocks.

Analysts said there was concern on the company's corporate governance front. This April, Essar Oil announced it would acquire 73.99 per cent stake in Vadinar Power for INR 2,100 crore. The company proposed to fund this through internal accruals. "However, with cash and bank balances at INR 2,430 crore as on

March 31, of which INR 2,060 crore is in deposit accounts, there is lack of clarity on the current liquidity levels. Besides, Essar Oil has been reporting annual losses for the past three year. Therefore, the management's assertions internal accruals will be sufficient to fund the purchase are untenable," Institutional Investor Advisory Services (IiAS) said in a report.

Source-On Request