Essar Energy unveils plans for $2.5bn London IPO

Essar Energy, the oil, gas and power arm of the giant Indian conglomerate Essar Group, said yesterday that it is planning a $2.5bn (£1.6bn) flotation in London, the stock exchange's largest listing for three years.

The group, which is controlled by the billionaire brothers Shashi and Ravi Ruia, India's fifth richest people according to Forbes magazine, will use the money from the initial public offering (IPO) to expand in India.

"About 90 per cent of the proceeds from the listing will go towards growth projects in India," said Naresh Nayyar, Essar Energy's chief executive. "From initial soundings of potential investors, there is clearly appetite among London-based institutional shareholders for an opportunity to buy into the Indian growth story."

Indian GDP is expected to hit 7.5 per cent this year, according to the IMF.

The money will pay for a ninefold increase in electricity production, and lift refinery operations from 300,000 barrels of oil a day to 750,000. As well as its projects in India, Essar Energy is in talks to buy Royal Dutch Shell's Stanlow refinery in Cheshire.

Essar will float between 20 and 25 per cent of its shares. Deutsche Bank and JP Morgan are arranging the deal.

Its parent company, Essar Group, has revenues of $15bn a year. The company's interests span steel production, communications and shipping. Shares in Essar Oil, a subsidiary listed in Mumbai which has a market capitalisation of more than $4bn, rose by 4.2 per cent following the announcement of the Essar Energy's intention to float.

Essar's decision to listing in London is a coup for the LSE, which has recently lost several high-profile deals to other exchanges. In January, the Russian aluminium group Rusal opted for Hong Kong, while a number of other deals, such as that for the airline ticketing group Travelport, which was slated for London, succumbed to a lack of investor interest.

The deal will be the largest London IPO since VTB, the Russian bank, raised £3.2bn in May 2007. It will be the biggest ever by an Indian company, topping the $1bn raised by the mining group Vedanta Resources in 2003.