Vedanta Offers $3.4 Billion for Full Control of Indian Units

By Rajesh Kumar Singh and Abhishek Shanker - Mar 22, 2012

Billionaire Anil Agarwal’s Vedanta Group has offered 170 billion rupees ($3.4 billion) to buy the Indian government’s remaining stakes in Hindustan Zinc Ltd. (HZ) and Bharat Aluminium Co., a ministry official said.

A panel of bureaucrats from ministries, including law, corporate affairs, finance and mining, met yesterday and decided to seek the advice of a group of ministers on the proposal, Vishwapati Trivedi, secretary at the Ministry of Mines, told reporters in New Delhi.

Buying the stakes will give Vedanta’s Mumbai-based unit Sterlite Industries (India) Ltd. (STLT) control over a combined 964,000 metric tons of annual zinc and lead-producing capacity and full ownership of a 2 million ton-a-year bauxite mine. The government is seeking to narrow its fiscal deficit through steps including asset sales and capping of expenses.

“This will be positive for Sterlite,” Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt., said in Mumbai. He has an outperform recommendation on Sterlite and expects the shares to rally 59 percent in 12 months. “The cash that Sterlite will spend will come back in the form of surplus from Hindustan Zinc.”

The zinc maker has cash and equivalents of $3.35 billion, according to data compiled by Bloomberg.

Pavan Kaushik, spokesman at Hindustan Zinc, declined to comment. Senjam Raj Sekhar, a spokesman at Vedanta Resources Plc (VED), didn’t respond to two calls made to his mobile phone and a text message seeking comments.
Government Stake

Vedanta offered 150 billion rupees for one company and 20 billion rupees for the other, Trivedi said, without identifying them. The government’s 29.5 percent stake in Hindustan Zinc is valued at 162 billion rupees at the current share price.

Hindustan Zinc fell 0.2 percent to 130 rupees at 9:19 a.m. in Mumbai trading, giving it a market value of $10.8 billion. Sterlite gained 0.3 percent to 115.80 rupees.

Sterlite, the nation’s biggest copper producer, owns 64.9 percent of Hindustan Zinc. The company may complete the transaction this year, Agarwal said on Feb. 25. It bought 51 percent of Bharat Aluminium, which owns the bauxite mine, in 2001 and a majority stake in Hindustan Zinc a year later.

Lack of full control at Hindustan Zinc has undermined decision-making at Vedanta. In 2010, Vedanta’s plan to buy Anglo American Plc (AAL)’s Skorpion zinc mine in Namibia through Hindustan Zinc failed after the Indian government didn’t ratify the deal. Vedanta completed the purchase through Sterlite.
Combining Units

Agarwal is combining the group’s publicly traded Indian units into a new company after an $8.67 billion purchase of oil producer Cairn India Ltd. (CAIR), Vedanta said Feb. 25. Sesa Goa Ltd. (SESA), India’s largest iron-ore exporter, will absorb Sterlite in an all-share deal.

Vedanta Aluminium Ltd. and Madras Aluminium Co. will also be merged into the new company, Sesa Sterlite.

Vedanta plans to transfer debt of $5.9 billion to Sesa Sterlite, reducing outstanding loans by 61 percent to $3.8 billion and cutting debt-service costs by $300 million for the year ending March 31, 2013, the company said.

India’s budget deficit may widen to 5.9 percent of gross domestic product in the year ending March, compared with a target of 4.6 percent. Finance Minister Pranab Mukherjee aims to cut the shortfall to 5.1 percent of GDP in the next fiscal year.

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net
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