Essar Energy Told They Can No Longer Defer Tax Payments
Posted on: January 19th, 2012 by Emma Young
According to new reports, Essar Energy has found itself in a world of trouble. This news comes in as Essar Energy was told by the Supreme Court that they could no longer defer payments of more than $1 billion in taxes. Now, Essar Energy finds itself in a major financial hole.
After this decision was announced by the courts, the company’s shares went plunging down by almost 33 percent to a record low on the London Stock Exchange. This shows that investors no longer think that this company will be able to hold on, and they are abandoning a sinking ship. With shares dropping as fast as they have, this actually wiped hundreds of millions of pounds off its value.
Reports show that the Supreme Court had actually overturned a lower-court ruling that allowed the majority-owned subsidiary, Essar Oil, to defer on sales tax payments of about 63 billion rupees. This is the same as about $1 billion. Some investors had assumed everything was going to be fine when the lower court gave its ruling. However, this big overturn has caused the company to take a turn for the worse.
The lower-court had given the company a 13-year exemption from paying these taxes. However, the Supreme Court did not see it the same way. In fact, the Supreme Court said that Essar had failed to start production in the period when the ruling was applicable, and as a result it has merited no exemption.
Essar Energy tried to defend itself by citing a massive cyclone that hit Gujarat in 1998 as the reason for not starting production on time. Either way, the Supreme Court was not impressed with this answer and found it was necessary to do away with the lower-courts ruling.
In London, the company saw its shares drop about 33 percent, or 56.70 pence. This announcement was made just after Indian stock market trading hours. Essar Energy is of course owned by the Indian conglomerate Essar Group.
Reports did show that the initial public offering raised $1.85 billion and marked the biggest-ever overseas share offer by an Indian company. Either way, things are not looking too good for Essar Energy. However, the whole energy industry has been looking pretty rough all over the world. This goes double for the UK, where families are struggling to pay for escalated energy prices.
