City investors have expressed their anger at a low-ball bid by Essar Energy's largest shareholder to take the Indian oil refiner private following a disastrous four-year spell as a public company.
The billionaire Ruia family's offer of £900m – or 70p a share – for the 22 per cent of the company that they do not already own has triggered calls for more protection for minority shareholders.
The stock has declined steadily since listing at 420p-a-share four years ago, spearheaded by JP Morgan Cazenove and Deutsche Bank.
Yesterday it added 2.15p, or 3.26 per cent, to 68.15p, but languished below the offer price. Short-sellers moved into the company last November, betting on further price declines.
The Financial Conduct Authority (FCA) refused to comment directly on Essar, but pointed out that reforms to listing rules were designed to offer more protection to minority shareholders, with the debacle over the Kazakh miner ENRC – also taken private, again by majority shareholders – still fresh in the memory.
"The new rules will give shareholders in premium listed companies additional voting rights and greater influence over key decisions," an FCA spokesman said. "By safeguarding minority interests from abuse by controlling shareholders, the changes will promote market integrity and empower minority shareholders to hold the companies they invest in to account."
David Cumming, head of equities at Standard Life Investments, called the bid by the brothers Ravi and Shashi Ruia "an example of cynical opportunism", while other fund managers were equally scathing in private. Many had been forced to buy into the company for tracker funds although their stock pickers have steered clear of the business.
A source at one leading fund manager said: "We have not held an active position in Essar precisely because of the governance concerns that are now coming home to roost."
A shareholder governance body added: "In cases where there is a majority shareholder there needs to be a relationship agreement between the shareholder and the company. The FCA's powers also only extend to the company – if anything they need direct recourse against the majority shareholders themselves. If you go above 30 per cent you have to offer the other shareholders the highest price you paid for the shares. Above 50 per cent you can do what you want."
Essar Energy, which owns a series of power and oil assets in India and operates the UK's second-biggest oil refinery, Stanlow in north-west England, said there was no certainty that a formal offer for the company would be made.
Sources close to the Ruia family defended their decision to float the business in 2010, arguing that the shares had been hit by factors outside their control. These included a fall in growth expectations in India and an unexpected tax ruling in 2012 which meant that Essar was not entitled to defer tax payments of $1.78bn (£1bn).