‘Post Rosneft deal, minority shareholders should vote again on Essar Oil delisting plans’

Essar Oil’s plans to voluntarily delist from stock exchanges could face uncertainty with proxy advisory firms raising the issue of corporate governance. This follows an agreement signed in July 2015, wherein Russian oil major Rosneft had expressed interest to acquire 49 per cent stake in Essar.

Proxy advisory firms say that since Essar Oil’s valuation could change post the deal with the Russian company, small investors should be given an opportunity to decide whether they concur with the delisting or not.

Hetal Dalal, COO, Institutional Investor Advisory Services, said, “The fact that Rosneft is investing clearly changes the complexion of the business and the company and, therefore, the question remains at what price the shareholders are willing to give in their shares… Especially, given the floor price is way off from what the current price is.”

In August last year, minority shareholders of the Ruia-promoted Essar Oil had voted to approve the delisting of the company’s shares. The company had set a floor price of ₹108.15 while the final buyback price would be decided through a reverse book-building process. However, the shareholder approval has a validity of one year and expired this August.

Floor price vs current price Another woe that investors have is that the Essar Oil stock price — at ₹190.80 at Friday’s close — is way above the delisting floor price of ₹108.15 set a year ago. An Essar Oil spokesperson said the delay in delisting was because approvals from stock exchanges took longer than expected. Now, the company says it has applied to capital market regulator SEBI to extend the validity of the shareholders’ yes vote.

The spokesperson said the Rosneft deal is still just a non-binding agreement and the due diligence is currently underway. Appropriate disclosures would be made when the deal is finalised.

“The floor price was set according to a SEBI formula. Delisting is a completely shareholder-driven process. And shareholders will tender the shares at the price they think is right. If they still want to exit, they can at the market price or at a higher price, which they feel is right for their shares. That will lead to price discovery,” the spokesperson added.

SEBI & validity of resolution

Against this, JN Gupta, co-Founder and Managing Director of Stakeholders Empowerment Services (SES), questions the company’s move to apply to SEBI for extension of the vote’s validity. “The vote was on a resolution and the shareholders approved the resolution for one year,” he said. “So, the validity of the resolution can only be extended by the shareholders themselves, not by SEBI. How can a regulator impose itself on a shareholder’s will?”  

In addition, Gupta said, the earlier approval by the shareholders had been given on the then shareholding structure. “Now if Rosneft is going to acquire 49 per cent stake, there has to be an open offer.

“The delisting process is immaterial. Otherwise, companies can begin delisting processes and then do such deals.”

SES plans to publish a report questioning the absence of an open offer within the fortnight.

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