Essar Energy, part of the Essar Group, one of the country's conglomerates today launched an initial public offer (IPO) at the London Stock Exchange (LSE) to raise as much as $2.5 billion - London's biggest IPO since 2006 - to fund its expansion plans.

According to the term sheet, Essar Energy is selling about 20-25 per cent stake by pricing the share in the range of 450-550 pence and will be on sale on sale until 29 April with Essar Group holding the remaining 75 per cent of Essar Energy's issued share capital.
The listing would value Essar's energy in the range of $9.5-11 billion, and the IPO would be the second-largest IPO, behind the $3 billion listing of Reliance Power in early 2008.

The IPO, which is being managed by JPMorgan Cazenove and Deutsche Bank AG will be Essar's first offering to investors since 1995.

Early last month, the media had speculated that the Essar Group was considering raising up to $3 billion (Rs13,827 crore) by listing its oil and power assets on the LSE since it was one of the strongest options to finance the group's $8-9 billion expansion plan and rank it among the leading player in India's oil refining and electric power generation sectors. (See: Essar Group plans LSE listing to raise $3 billion)

Essar, with $15 billion of revenues, is controlled by brothers Shashi and Ravi Ruia, who are joint fifth on Forbes' Indian rich list.

Essar has interests in telecommunications - including a joint venture with Vodafone of the UK - as well as steel, power, oil refining and outsourcing, in countries from the US to Kenya and parts of Asia.

The company, India's second-largest private sector power operator, has fully-funded plans to increase its power generation business from 1,200 MW of capacity to 6,000 mw by 2012. It would use the IPO funds for the next phase of this expansion, taking its power generation capacity to 11,000 MW.

It will also use the funds to expand power capacity, and the development and exploration of oil and gas blocks.

As part of the company's strategy to source raw materials for its global steel and power operations, the group signed a deal last month to buy US coal producer Trinity Coal Partners LLC from US private-equity firm Denham Capital for $600 million (Rs2,765 crore). (See: Essar Global in talks to acquire US coal miner Trinity Coal for $600 million).

 
It followed it up by acquiring Aries coal mines in Indonesia at an estimated price of Rs908.6 crore to give it a resource base of 100 million tonnes of thermal coal and mineable reserves of 64 million tonnes. (See: Essar Group buys Indonesian coal mine for Rs909 crore) 

In the oil business, the LSE listing would help Essar finance the second phase of its refinery expansion to increase capacity from 300,000 barrels of oil per day to 750,000 bpd.

Essar Oil is also in talks with Royal Dutch Shell to buy three European refineries. The company, which runs a 280,000 barrels-per-day refinery in western India and owns a 50 per cent stake in a Kenyan refinery, is pursuing the deal as part of plans to have a refining capacity of 1 million barrels a day.