**[investwise]** After Vedanta, Essar Energy Lists In London!

 

Essar Energy is coming to London soon Make no mistake, Essar Energy is a very chunky company, with big backers. It's part of the giant Indian conglomerate Essar Group, which is run by the billionaire brothers Shashi and Ravi Ruia. With family wealth of $13bn, they rank 40th on this year's Forbes Rich List. Essar Energy owns oil refineries and power stations in India, including four plants with a total installed capacity of 1,220 megawatts. That's more than the entire power production of Argentina. Indeed, the firm "is the second-biggest player in India's fast-growing energy and oil & gas sectors", says Cliff D'Arcy for the Motley Fool. And Essar Energy is coming to London very soon. The group is currently selling a 20%-25% stake to City institutions. The offer closes next Thursday, 29th April. At the price range of between 450p and 550p, the proceeds are expected to be about $2.5bn. That would give the whole company a stock market value of some £6.5bn. Indeed, this issue is set to be the largest-ever overseas listing by an Indian company. It's also the biggest IPO (initial public offering) to be launched in London since Standard Life's £2.4bn sale in 2006, says Bloomberg. And share dealings are set to start in early May. Is Essar a good investment? So should you invest in it directly? Full details about Essar are sparse. And that's likely to remain the case until the shares start trading. Because only then will the prospectus be published. Seems strange, but that's the way it works on this one. It means ordinary investors haven't got much to work with if they want to analyse the business. That may be "a shame, because the company actually has a rather impressive growth story to tell", says Richard Fletcher in the Telegraph. But for those of us who prefer to pore over the numbers before we invest, this isn't the perfect backdrop. Sure, India may be a great long-term growth story. Its economy is forecast to expand by almost 9% both this year and next, according to the International Monetary Fund. But share investing in the country is by no means plain sailing. Further, it certainly isn't guaranteed to be profitable. OK, a couple of India-related stocks, Vedanta Resources and Cairn Energy, have done very nicely on balance. But investors have had to stomach a very bumpy ride on occasions. And anyone who bought into Reliance Power, India's biggest-ever IPO, when it floated in 2008 has had a much less happy time. The price is still languishing at more than 40% below its opening level. Very painful. As my colleague Cris Sholto Heaton points out, the Indian stock market "is dominated by family-controlled companies that don't always have the rights of minority shareholders as their first priority". (Cris is MoneyWeek's Asia specialist – he's about to launch a newsletter uncovering good value mid and small-cap Asian stocks for investors – meanwhile you can sign up for his free weekly email here). In other words, outside investors can end up with a raw deal. And remember that the Ruia brothers will still own by far the majority stake in Essar Energy. "To give outside investors confidence that their interests will be protected, another strong independent director is needed", points out Una Galani on breakingviews.com. The company has said it will appoint "another independent director with relevant UK experience", she says. "But investors won't know who that is before they have to stump up cash for the IPO. This really is a far from ideal way of doing things". Playing blind can be fun at the poker table, but it's a sure-fire way to lose when it comes to investing. So the lack of information and clarity here puts me off. Why IPO investors often lose money But quite apart from all this, it's worth being cynical about new issues generally. Basically, the existing owners want you to pay them a price they've set for their shares. On the basis that the seller always knows more than the buyer, that makes me uncomfortable. It's perhaps no surprise that many IPOs only bring losses for their new investors. I'm not saying that Essar won't ever come good. But in the short term, the potential risks outweigh the rewards as far as I'm concerned. I'd suggest giving it time so we can all learn a bit more about the company and watch the way it trades for a while. How you could end up investing in Essar More to the point, as I noted above, a company the size of Essar Energy is going to walk straight into the FTSE 100 index in the next reshuffle in June. So you could well find that you're indirectly becoming an investor in Essar whether you like it or not. If you own shares in a FTSE 100 tracker fund, this will now have to invest in Essar up to a level equivalent to the company's new weighting in the index. And if part of your pension has gone into a tracker, the same applies. At least, though, you'll only own a small sliver of the company. And that's probably quite enough for now. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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