Essar Energy (Dusseldorf: 11224817.DU - news) , the London-listed power giant, saw £592m wiped off its market value yesterday after a court in India ruled that it was not entitled to defer tax payments of $1.78bn (£1.2bn).
Essar's majority-owned Indian subsidiary, Essar Oil (BSE: ESSAROIL.BO - news) , had benefited from a Gujarat state incentive scheme that allowed it to defer until 2021 the payment of sales tax up to a value of $1.78bn for its huge Vadinar Refinery.
It had already used up almost two thirds - $1.24bn - of the limit for deferral since Vadinar began commercial production in 2008.
Essar was last night unable to offer investors any clarity as to the terms on which it would now be required to pay the $1.24bn bill.
Its (Euronext: ALITS.NX - news) finances are also likely to be hit when it begins paying sales tax on current and future production, $540m of which it would have expected to be deferred. The company did not yet know when those payments would commence.
The tax deferral arrangement had originally stipulated that the Vadinar refinery must enter production by 2003. The project was hit by delays and, in 2008, the year it finally began production, Gujarat High Court granted an extension entitling Essar to qualify for the scheme.
Essar argued that the delays had been caused by the impact of a cyclone that hit the state in 1998 and also by "the actions of the state government and certain orders passed by the honourable High Court which was later set aside by the Supreme Court", and that it was therefore entitled to the extension.
Gujarat's state government argued that Essar should not qualify and yesterday's Supreme Court decision overruled the High Court in favour of the state, causing Essar Energy's shares to tumble.
Essar could not say whether it had the right to appeal the judgment and said it would provide further information after studying the ruling.
Essar Energy listed in London in May 2010, offering 23pc of the company's shares, at 420p a share, giving it a market cap of £5.5bn.
The other 77pc of the shares are held by privately-owned Indian conglomerate Essar Group, run by the Ruia family.
Last year Essar Energy bought the Stanlow refinery in Cheshire the UK's second largest refinery from Shell (LSE: RDSB.L - news) , but the majority of the company's business operations are in India.
Since listing, Essar Energy's share price has been hit by a series of delays to its projects and by December's announcement that chairman Ravi Ruia would stand down temporarily after being charged in relation to a telecoms scandal in India. Mr Ruia denies any wrongdoing.
Yesterday's court ruling saw Essar Energy's shares plunge to an all-time low of 107p before recovering slightly to close down 26pc at 127p.
This took its market cap down to £1.66bn.
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