Essar to merge ports, oil fields in shipping arm

In a major “re-organisation of group businesses”, the Essar Group on Wednesday announced a plan to combine its ports and oil field businesses with Essar Shipping — its listed shipping entity.
“We plan to create a full logistics business. The valuation of the current business model is not fully reflective of the value we are getting,” Sanjay Mehta, managing director Essar Shipping told DNA Money in an interview by telephone.
The move to consolidate and bring together interests in oil terminals, ports, crude oil carriers and oil field drilling services, will make it the “first of its kind”, Mehta added. “We are moving away from being a pure shipping company.”
Essar Oilfields, which will come under Essar Shipping, owns 12 land drilling rigs and 1 semi-submersible rig.
What it also does is that the shipping business, which is prone to extreme cyclicality, will be able de-risk itself with “annuity” businesses such as ports and terminals and to an extent oil field businesses which will ensure a steady inflow of revenues to the combined entity.
The group is also expected to coin a new name for Essar Shipping in the next few weeks. The group set up a “re-organisation committee”, which has been authorised to appoint financial and legal advisors as well as valuers who will carry out valuations and recommend swap ratios.
The board has passed an omnibus resolution authorising various capital raising options and to facilitate this process appointed a “finance committee”. Whether the proposed merger of Essar group’s wholly owned businesses such as ports and oil terminals will increase the promoters stake to a level which would be enough to delist the shares from the stock bourses is a question many shareholders would ask. Perhaps the Essar Shipping share surrendered almost 5%, to Rs 199.40 from Rs 209.85, the maximum permissible in a day.
“We have shelved the delisting plan,” Mehta said.
According to Mehta, the group’s port business is much bigger than its peers such as Mundhra Port which is listed.
Essar Shipping has called a EGM of shareholders on February 23, to get their approve on the new structure. The group has invested $1 billion in the past two years on upgrading logistics, ports and the oil and drilling business.
“It is a win-win deal. We’ll have consistency in our revenue streams as ports and terminals are like annuity business, and the services business is a growth business,” Mehta said.