In 2008 when Anil Agarwal tried to restructure his businesses in India, the billionaire had taken a circuitous African route. Immediately, minority shareholders of his London-based holding company Vedanta Resources had protested. The main grouse - Agarwal wanted to include his relatively unknown African assets, copper mines in Zambia, under the Indian company’s fold. Many said that the African asset had been overvalued and the transfer of assets was beneficial to the main shareholder, Agarwal himself.
Four years later, the “metal king” is close to announcing another attempt to restructure his Indian operations, which since then has added Cairn’s oil business to its portfolio. Sterlite Industries, which has aluminium, zinc and copper assets, will merge with the iron ore miner Sesa Goa that also owns stake in Cairn.
Agarwal might have a better chance of pulling it off this time. Whispers from Vedanta’s offices in Delhi and Mumbai say that the restructuring this time will be limited to Indian operations and the African copper assets will be kept out. “Sterlite Industries will become the holding company. It will have two arms. One will handle the iron ore business that is presently under Sesa Goa and the rest non-ferrous businesses will come under the second arm,” a Vedanta Resources official told me this morning. Vedanta Aluminum, the much-in controversy company that operates a refinery in Orissa, might also come under the new entity. Would becoming a “Sterlite” company mean that Agarwal will be less vulnerable to attacks from global environmental and social activists over the Orissa project? Not necessarily.
The businesses under Hindustan Zinc and BALCO though will remain out of the restructuring as Agarwal is yet to buy back stakes that the Indian government still holds in these companies.
The merger will create a $14 billion metal and mining behemoth by market cap, and will be the second most profitable private company in India after Reliance Industries. It will also make easier for Agarwal to use surplus funds from high cash operations like Sesa Goa for loss making units like Vedanta Aluminium.
The most vocal of protests against Agarwal last time came from funds like The Children’s Investment Fund who owned stakes in Vedanta Resources. The entrepreneur faced tough questions during road shows in London and Singapore. A Citigroup report had noted that the valuation of mines in Africa was “expensive” and the “dilution wasn’t justified.” Under the then restructuring plan, Sterlite Industries would have transfered its aluminium and power businesses to Madras Aluminium Company (Malco), and Vedanta was to transfer its 79.4% in the Zambian copper entity Konkola Copper Mines to Sterlite.
The doubts were not restricted to the African assets. Investors were also not clear or completely aware of Agarwal’s businesses in India, especially the copper part. Thus the share transfer ratios were contested and questioned.
It is still early days and the top management at Vedanta is keeping mum. But the announcement might be just a week away and Agarwal and his top team will do better to bring their investors into confidence. Not surprisingly, the street is already abuzz on the share swap ratio between Sterlite Industries and Sesa Goa and initial bets are on 2:3 swap. Interestingly, an African angle might still play a crucial role in deciding the swap ratio.
The latest issue of Forbes India talks about Sesa Goa’s acquisition of rights to iron ore mines in Liberia. The reserves are yet to be documented but early signs talk about the mines having one billion tons of iron ore. Once the Liberian mines start operations in two years, it will become Sesa Goa’s largest operation and immediately catapult the company to the fourth largest iron ore miner in the world. Will Agarwal count the Liberian mines, though they are still underdeveloped, when he values Sesa Goa?
Read also our story in the latest issue of Forbes India A Beautiful Mine For Sesa Goa