Monday, June 7, 2010

Essar Energy to know in three days if on coveted LSE list

S Kalyana Ramanathan / London June 6, 2010

If it gets on the FTSE 100, it will be only the second company there with an Indian promoter.

In about 72 hours, the Ruia family-promoted Essar Energy would know if it had made it to the coveted FTSE 100 index, a month after listing its Initial Public Offer on the London Stock Exchange (LSE).

The FTSE 100 is a market-capitalisation weighted index representing the performance of the 100 largest UK-domiciled blue chip companies. The index represents approximately 88 per cent of the UK’s market capitalisation and is considered the basis for investment products such as funds, derivatives and exchange-traded funds.

Essar Energy’s market capitalisation at the close of trading on Friday on the LSE was £5,533.64 million, making it the 52nd most valuable company there. It also placed the company in the middle of the 102 stocks listed on the FTSE 100 index.



Market cap above the 90th rank


At least 19 days of trading


LSE Listing


Registered in UK


Liquidity test

With a 23% float,

most likely passed

* As of Friday, June 4

On Friday, Essar Energy’s closing price was 435 pence a stock or 1.16 per cent more than the previous close. At 420 pence a share, Essar had raised around $1.95 billion from its LSE IPO in the first week of May.

Market capitalisation, however, is not the sole criterion for making it to the FTSE 100. Apart from the 19-day trading rule prior to being considered for the list, a test Essar Energy has passed, the stock must have a gross market capitalisation above the 90th ranked company in the index at the time of review. The 90th company in the list as of Friday’s market cap was travel and leisure company Whitebread, at £2447.62 million. Based on this condition alone, Essar Energy has made its way past the 90th ranked company.

A FTSE 100 aspirant stock will also have to pass certain liquidity conditions. Market sources here said that with a 23 per cent free float, Essar Energy is most likely to pass this test as well.

The most fundamental condition, however, is that it must have a LSE listing and a company registered in the UK. Essar Energy is already a UK-based company, with the Indian connection strictly restricted to the promoters’ nationality.

The entry of Essar Energy in the FTSE 100 list is also likely to oust at least one other company from the current list. The London Stock Exchange’s own stock, which is also on this list, is a possible candidate that could be ousted on Wednesday. LSE stock with a market cap of £1,691.63 million is the second least valuable company on this list and the least valuable company now is financial services company Schroders Plc (non-voting), with a market cap of £658.81 million.

On Wednesday, it will be known on which stocks the axe falls. Along with Essar Energy, Tanzania-focused gold producer, African Barrick Gold, will also be making a FTSE 100 debut. Hence, at least two stocks are likely to beat a retreat from the FTSE 100 on Wednesday.

The FTSE 100 Index also accounts for 7.97 per cent of the world’s equity market capitalisation. The index, that began ticking in 1984, today has 101 companies and 102 stocks (Royal Dutch Shell has two classes of shares) in it.

Essar Energy’s successful entry into this primary index will make it the second company to go on the FTSE-100 that is backed by an Indian promoter. At present, the only company there which is backed by an Indian promoter is Anil Agarwal’s Vedanta Resources (£5,934.07 million and ranked 47th by market cap).

FTSE is expected to make an announcement of the reconstituted FTSE 100 list on Wednesday after the markets close for trading. The debut stocks on the FTSE 100 list however will appear in the list only after June 18.

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