Essar Energy, a holding company for the Essar group?s energy business, said on Thursday it will raise $2.5 billion (around Rs 11,250 crore) on the London Stock Exchange (LSE), to finance the expansion of its power and oil verticals. This will be one of the largest overseas initial public offerings by an Indian company.

Post-listing, the firm is expected to have a market capitalisation of $10 billion (around Rs 45,000 crore), given equity of around $2 billion (around Rs 9,000 crore) and a dilution of 20%-25% on the enlarged capital, vice-chairman Prashant Ruia said. Upon completion, promoters would hold at least 75% in Essar Energy, which would be listed on the LSE . The shares are likely to be listed in early May.

?The operations of Essar Energy will comprise the power business and the oil and gas business currently held within companies owned by Essar Global Ltd,? he said. ?The entire proceeds are being used as growth capital in the business,? he added.

Two-thirds of the proceeds will be pumped into the power business, and the remaining into oil & gas as well as for general working capital requirements.

Ruia also said that the IPO proceeds will be utilised for business opportunities in India, adding it has no ?binding commitments? with Shell to buy its refineries. Talks with Shell are under way, and a decision will be taken after the completion of the IPO, he added.

The stake sale by Essar Energy in the UK would be the third-largest by an Indian company after ADAG?s Reliance Power and ICICI Bank?s follow-on issue. Naresh Nayyar, CEO, Essar Energy, said: ?The proceeds will focus on organic growth projects, in addition to the first two phases of our power plant expansion, the expansion of the Vadinar refinery to 18 million tonne per annum (mtpa), and bringing our oil & gas fields into production.?

On the growth prospects of the company, Nayyar said that this is linked to the completion of various projects it has announced, without disclosing any prospective numbers. For instance, power generation capacity is being increased from 1,220 mw to 11,470 mw. In refining, capacity is being expanded from 14 mtpa to 18 mtpa by March 2011.

For the nine months ended Dec 31, 2009, Essar Energy had revenues of $5.6 billion (around Rs 25,000 crore), and an adjusted Ebitda of $307 million (around Rs 1,370 crore). It also has total assets in excess of $8 billion (around Rs 35,800 crore) on its books, and a debt of $3 billion (around Rs 13,425 crore) Ruia said.

Essar Energy Holdings holds 88.4% stake in Essar Oil, which is listed on the Bombay Stock Exchange. Essar Oil has a 10.5 million tonne refinery at Vadinar in Gujarat and an array of oil properties in India and abroad. Asked if Essar Oil would be delisted, Ruia said: ?This transaction in no way changes the structure of Essar Oil. It would remain listed on the BSE.? Shares of Essar Oil, which has a public float of 11.4%, rose 3.23.% on the BSE on Thursday to close at Rs 150.40. ?This will be a landmark event both for Essar Group and Essar Energy. At the time of the offer, we would have already $2 billion of capital in Essar Energy. A London listing gives us an excellent platform to showcase the potential of the Indian market to the world,? Essar Energy chairman Ravi Ruia said.

Ravi Ruia said that Essar Energy?s future is wedded to India ?s development and its growing energy needs. He said the successful completion of the transaction will provide investors a unique, London-listed liquid vehicle to anchor the Indian growth story. The country?s power deficit, at 11% last year, is not expected to go away anytime soon. India?s per capita power consumption of 610 kilowatt hours (kWh) in 2007 was far below the per capita power consumption in other major emerging markets ? 2,346 kWh in China, 2,154 kWh in Brazil and 6,338 kWh in Russia. About 44% of Indian households do not have access to electricity. In oil and gas, per capita oil and gas consumption remains very low when compared to other major emerging markets: 0.9 barrels per person in 2008 compared to 2.2 barrels per person in China , 4.4 barrels per person in Brazil and 7.3 barrels per person in Russia . A strong uplift in oil and gas consumption is expected from rising vehicle ownership which, at approximately 35 vehicles per 1,000 of the driving population in 2009, is currently still among the lowest in the world. Essar has a 12-year operating track record in power production. It has secured ownership of 279 million tonne of coal for its power plants with a further 64 million tonne of coal being acquired. It has four existing power plants with a total installed capacity of 1,220 mw, and six plants are under construction to increase capacity to 6,100 mw by 2012, with debt funding secured for 73% of the total expected debt financing requirements. The total installed and planned capacity is expected to reach 11,470 mw by 2014.

In oil & gas, Essar has 14 exploration blocks in India , Nigeria , Vietnam , Australia , Indonesia and Madagascar , including the RM(E)-CBM-2008/IV CSG block in Rajmahal , India , for which Essar Energy has been declared provisional winner. On the refining & marketing side, Essar has India ?s second-largest private sector refinery at Vadinar in Gujarat . It has current capacity of 10.5 million metric tonne per annum, with throughput capacity of 14 mmtpa. It has plans to expand this to 18 mmtpa. The ultimate target is to have 36 mtpa. Essar has a network of nearly 1,300 franchisee petrol stations across India . Nayyar said: ?Essar Energy has built a tremendous portfolio of assets and a pipeline of projects across the energy value chain. We believe our strong track record of project execution and growth, combined with our high standards in health, safety and environmental stewardship, leave us well placed to capitalise on this unique opportunity and deliver shareholder value for many years to come.?