Vedanta to Combine Its Sterlite Industries Unit With Sesa Goa to Cut Debt

By Abhishek Shanker and George Smith Alexander - Feb 25, 2012 6:43 PM GMT+0530



Sesa Goa (SESA) Ltd. and Sterlite Industries (India) Ltd. (STLT), controlled by billionaire Anil Agarwal, will combine to reduce the debt of parent Vedanta Resources Plc (VED), which paid $8.67 billion to buy Cairn India Ltd. in December.

Sesa Goa, India’s largest iron-ore exporter, will absorb Sterlite in an all-share transaction, London-based Vedanta said today in a statement. Investors will get three Sesa Goa shares for five shares of Sterlite. Vedanta will transfer for a token $1 its 38.8 percent holding in oil producer Cairn India, including a debt of $5.9 billion, to Sesa Sterlite, the new company that will hold 58.9 percent of Cairn India.

Vedanta, with no previous experience in oil and gas projects, is trying to boost its finances and ratings after buying Cairn India and gaining access to the nation’s biggest onshore oilfield. Moody’s Investors Service on Jan. 12 cut Vedanta’s bond rating and maintained a negative outlook following the acquisition, which pushed the total debt of the group to $9.65 billion.

“This will help Vedanta improve its debt profile as the loans taken to buy Cairn will be transferred to Sesa Sterlite,” said Abhisar Jain, an analyst at Centrum Broking Pvt. in Mumbai. “This will be a positive since Cairn has a good cash flow.”

Vedanta Aluminium Ltd., the Indian aluminum unit in which Vedanta owns a 70.5 percent stake, and Madras Aluminium Co. will also be consolidated into the new company, according to the statement. The transfer of Cairn India shares won’t be conditional on the merger of Sesa, Sterlite, Vedanta Aluminium and Madras Aluminium, according to the statement.
Interest Cost

Vedanta’s debt will fall 61 percent to $3.8 billion and the debt-service cost will be reduced by $300 million for the year ending March 31, 2013, the company said in a presentation after announcing the merger. Cairn India’s debt, which bears an annual interest cost of 5.2 percent, will continue to be guaranteed by Vedanta, Group Chief Financial Officer Tarun Jain said at the conference.

Vedanta is seeking coal assets in Latin America and all future acquisitions will be made by Sesa Sterlite, Deputy Chairman Navin Agarwal said today at a media conference in Mumbai. The group’s reorganization is outside the purview of the competition commission, Jain said.

Sterlite rose 3.1 percent, the most in a week, to 118.60 rupees in Mumbai yesterday, while Sesa dropped 0.2 percent. Cairn India Ltd. (CAIR) was almost unchanged at 381.35 rupees. The benchmark Sensitive Index fell 0.9 percent.
Capital Spending

Sesa Sterlite will have a net debt of $7.5 billion and an average interest cost of 8 percent, Jain said. Capital spending will be $6 billion in the next three years, he said.

Cairn India will announce a dividend based on fixed payout and will also give one-time payout in the next two to three months, Chief Executive Officer Rahul Dhir said today on a conference call. The transaction was valued by Grant Thornton LLP and KPMG LLP, which used discounted cash flows, market value and asset value to determine the swap ratio. Citigroup Inc. provided a fairness opinion to Sesa Goa, while Bank of America Corp. did the same for Sterlite.

The merged entity, in which Vedanta will hold a 58.3 percent stake, will help save $200 million annually, Navin Agarwal said earlier on a conference call. The merger will probably be completed this year, he said.
Simplified Structure

“Sesa Sterlite will be one of the largest global diversified natural resources majors,” Chairman Anil Agarwal said today in the e-mailed statement. “This transaction is a natural evolution, leading to simplification of the group’s structure.”

Sterlite, which is seeking to buy the Indian government’s remaining stake in Hindustan Zinc Ltd. (HZ) and Bharat Aluminium Co., may complete the transaction this year, Anil Agarwal said. Sterlite bought 51 percent of Balco in 2001 and a majority stake in Hindustan Zinc a year later.

Vedanta Aluminium, whose proposal to expand its alumina refinery in the eastern state of Orissa sixfold to 6 million metric tons, was rejected by a court, is running its smelter at 30 percent capacity, Anil Agarwal said today at the conference. The company is “confident” of getting a bauxite mine, he said. The court had said Vedanta’s plant could be sourcing bauxite from mines without environmental approvals.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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Citigroup Exits Investment in Indian Mortgage Firm With $1.9 Billion Sale By Adam Haigh, Ruth David and Stephanie Tong - Feb 24, 2012

Citigroup Inc. (C) exited an almost seven-year-old investment in India’s largest mortgage lender, selling its stake in Housing Development Finance Corp. for 95.5 billion rupees ($1.9 billion).

The U.S. bank sold 145.3 million shares at 657.56 rupees apiece, it said in a statement today. That’s a 6.2 percent discount to HDFC’s closing price yesterday. The sale resulted in a pretax gain of $1.1 billion for Citigroup, the release showed. Citigroup had offered the stock at 630 rupees to 703.55 rupees, according to a term sheet obtained by Bloomberg News. HDFC shares slipped as much as 6.3 percent today.

Citigroup joins European and U.S. banks including HSBC Holdings Plc (HSBA) and Goldman Sachs Group Inc. in selling Asian assets as global rules for higher risk buffers force lenders to boost capital. Citigroup, the third-largest U.S. lender by assets, also plans to raise as much as $20 billion in debt this year to make payments on a 2008 emergency credit program.

“Banks globally are currently under pressure to boost capital, and asset disposals make sense as the current environment makes fundraising from capital markets difficult,” said Lewis Wan, Hong Kong-based chief investment officer of Pride Investments Group Ltd., which manages $250 million of assets. “The fundamentals of U.S. banks and European banks are relatively weaker than that of Asian banks.”
Asian Asset Selldown

HDFC (HDFC) fell as low as 657.50 rupees today in Mumbai trading and was down 4.6 percent at 11:21 a.m. local time. Before today, the stock had gained 7.6 percent this year, compared with a 17 percent advance in the BSE India Sensitive Index. (SENSEX)

Citigroup said in June it was reducing its stake in Mumbai- based HDFC to 9.9 percent from 11.4 percent, in preparation for meeting the Basel III capital rules.

The latest sale is part of Citigroup’s “ongoing capital planning efforts,” the New York-based bank said.

HSBC, Europe’s largest bank, this week told customers it was withdrawing from consumer banking in Japan and closing down six branches. The London-based bank was seeking buyers for its Premier unit, which targets wealthy individuals in the country, three people familiar with the matter said on Jan. 25. The bank has also sold assets in Thailand and Korea.

In November, Goldman Sachs (GS) raised $1.1 billion selling shares of Beijing-based Industrial & Commercial Bank of China Ltd., the world’s most profitable bank. Bank of America Corp. said it would sell 10.4 billion shares of China Construction Bank Corp. the same month, for a profit of about $1.8 billion.

Carlyle Group LP divested 20 million shares in HDFC for 677 rupees apiece, or about 13.5 billion rupees, a person with knowledge of the sale said on Feb. 1. The price was at a discount of 3 percent to HDFC’s Jan. 31 closing price.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Ruth David in Mumbai at rdavid9@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Edward Evans at eevans3@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Citigroup to Exit India’s HDFC With $2.1B Sale By Adam Haigh and Ruth David - Feb 23, 2012

Citigroup Inc. (C) will sell its remaining stake in Housing Development Finance Corp., India’s largest mortgage lender, for as much as 102 billion rupees ($2.1 billion), a term sheet obtained by Bloomberg News showed.

The bank is offering 145.3 million shares at between 630 rupees and 703.55 rupees apiece, as much as 10.45 percent on its closing price in Mumbai yesterday, the document showed. The stake represents the lender’s 9.9 percent holding in HDFC.

Citigroup, the third-largest U.S. lender by assets, said in June it was reducing its HDFC stake to 9.9 percent from 11.4 percent ahead of the adoption of Basel III capital rules. Citigroup joins banks including Goldman Sachs (GS) Group Inc. and Bank of America Corp. that are selling holdings in Asia investments to boost capital and meet regulatory requirements for risk buffers.

“When the economy is on an uptrend, investors don’t usually sell stakes in financial companies because they are the first to benefit,” said D. K. Aggarwal, chairman of New Delhi- based SMC Wealth Management Services Ltd. “The sale is possibly because of Citigroup’s own strategic reasons,” he said in a phone interview.

Shannon Bell, a spokeswoman for Citigroup in New York and Debasis Ghosh, a spokesman for Citigroup in Mumbai, declined to comment. An HDFC (HDFC) spokesman couldn’t be reached. Shares of HDFC fell 0.1 percent to 701.3 rupees in Mumbai. HDFC has gained 7.6 percent in 2012, compared with a 17 percent increase in the benchmark BSE India Sensitive Index. (SENSEX)
No Sale Plans

Citigroup “has no plans to sell any additional shares of HDFC,” the New York-based bank said when it reduced its HDFC stake in June.

In November, Goldman Sachs raised $1.1 billion selling shares of Industrial & Commercial Bank of China Ltd., two people familiar with the matter told Bloomberg. Bank of America said it would sell 10.4 billion shares of China Construction Bank the same month, for a profit of about $1.8 billion.

Carlyle divested 20 million shares in HDFC for 677 rupees apiece, or about 13.5 billion rupees ($273 million), a person with knowledge of the sale told Bloomberg on Feb. 1. The price was at a discount of 3 percent to HDFC’s Jan. 31 closing price.

Citigroup is managing the share sale. Indian companies raised 296 billion rupees in domestic equity offerings in 2011, a third of the amount raised the previous year, according to data compiled by Bloomberg.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Ruth David in Mumbai at rdavid9@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Asia Stocks, Aussie Drop on Growth Concern By Lynn Thomasson - Feb 22, 2012

Asian stocks fell the most in a week and the Australian dollar weakened as reports signaled slowing global economic growth and Hewlett-Packard Co. (HPQ) forecast profit that missed estimates. Oil dropped from a nine-month high as U.S. stockpiles increased.

The MSCI Asia Pacific Index (MXAP) lost 0.5 percent as of 10:28 a.m. in Tokyo. A gauge of technology companies in the equity benchmark slid 0.7 percent. Standard & Poor’s 500 Index futures lost 0.1 percent. Australia’s currency retreated 0.1 percent to $1.0626 and the dollar rose against most of its major counterparts. Oil dropped 0.4 percent to $105.80 a barrel.

European services and manufacturing output shrank in February, Markit Economics said, and Taiwan cut its 2012 growth forecast yesterday. U.S. sales of previously owned houses missed economists’ forecasts, according to an industry report. Data today may show Hong Kong’s exports shrank 7 percent in January, while Taiwan’s industrial production contracted 15.3 percent, according to economist surveys by Bloomberg.

U.S. crude supplies rose 3.55 million barrels last week, figures from the industry-funded American Petroleum Institute showed. An Energy Department report today may show inventories climbed 1.35 million barrels to the highest level in almost five months, according to a Bloomberg News survey of analysts.

Mazda Motor Corp. (7261) dropped 8.2 percent. Japan’s least profitable major carmaker said it may raise a record 162.8 billion yen ($2 billion) selling new stock.

The Australian currency was near a three-week low against the U.S. dollar as Prime Minister Julia Gillard called a ballot for the leadership of the ruling Labor Party following the resignation of Foreign Minister Kevin Rudd.

To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Record Nickel Supply May Expand Global Glut, Thwart Rally By Jae Hur and Ichiro Suzuki - Feb 21, 2012

Mining companies and refineries are producing more nickel than at any time in history, expanding a glut that threatens to reverse this year’s rally.

Production will exceed demand by 45,000 metric tons, a 73 percent jump from 2011, Barclays Capital estimates. That’s equal to 46 percent of stockpiles tracked by the London Metal Exchange. Refined output will rise 12 percent, the most in at least eight years, according to Morgan Stanley. Prices, which rose 8 percent to $20,230 a ton this year, may fall as much as 13 percent to $17,630 a ton by Dec. 31, the median of 11 analyst estimates compiled by Bloomberg shows.

Metals have returned to a bull market from a 22 percent slump last year on an improving outlook for global growth with manufacturing in the U.S. capping the biggest two-month increase in more than two years in January and unexpectedly gaining in China. With new supply expected from Australia to Madagascar to Brazil, consumption still won’t expand fast enough to absorb the extra metal. Most markets for stainless steel, accounting for 76 percent of nickel demand, remain “depressed,” Deutsche Bank AG said in a report Feb. 15.

“We’ll get more and more supply over the course of the year,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “We expect huge surpluses for nickel not only this year, but next year, and probably in 2014. It’s mainly due to an increase in supply, but on the other side the stainless steel industry is facing a tough time.”
Metals Rebound

The LMEX gauge of six industrial metals rose 11 percent this year, as the Standard & Poor’s GSCI index of 24 commodities added 8.5 percent. The MSCI All-Country World Index of equities gained 9.9 percent and Treasuries lost 0.7 percent, a Bank of America Corp. index showed.

Refined production will reach almost 1.77 million tons this year as demand increases 10 percent to 1.72 million tons, providing surpluses for at least two more years, Morgan Stanley estimates. Stockpiles in warehouses monitored by the LME rose 17 percent to 97,308 tons since Nov. 9, bourse data show. Orders to withdraw metal from inventories declined 58 percent since reaching a seven-year high in August.

Additional supply will come this year from Vale SA (VALE3)’s Onca- Puma and Anglo American Plc (AAL)’s Barro Alto mines in Brazil and Glencore International Plc.’s Murrin Murrin and First Quantum Minerals Ltd.’s Raventhorpe in Australia, according to Morgan Stanley. Projects by Vale in New Caledonia and Sherritt International Corp. (S) in Madagascar will take total production from new operations to 117,000 tons in 2012, the bank estimates.
Behind Schedule

That production may arrive more slowly than the market is anticipating because mines are using extraction processes that previously fell behind schedule, Daniel Brebner and Xiao Fu, analysts at Deutsche Bank in London, wrote in a Feb. 15 report. The bank raised its forecast for this year’s average price by 21 percent to $22,500.

Some mines are curbing output. BHP Billiton Ltd. (BHP), the world’s third-largest producer, said Feb. 1 it will reduce rates at its Mount Keith mine in Western Australia by 30 percent for about a year because of lower prices and gains in the Australian dollar. The Melbourne-based company pays costs in the local currency and sells its metal in U.S. dollars, which has depreciated about 16 percent in the past two years.

Accelerating growth may mean demand exceeds analysts’ expectations. U.S. manufacturing grew in December and January at the fastest back-to-back pace since 2009, Federal Reserve data Feb. 15 showed. Factory output in China, the biggest nickel user, unexpectedly expanded in January, the country’s statistics bureau and logistics federation reported Feb. 1. Manufacturing in the U.K. jumped in December by five times as much as economists forecast, the government said Feb. 9.
Replenish Inventories

Pig iron, a substitute made from lower-grade ores mined in Indonesia and the Philippines and processed in China, may also act as a regulator on nickel prices as demand for stainless steel increases. The slump in 2011 made so-called primary nickel cheaper than pig iron, as steelmakers used more of the refined nickel substitute. That in turn spurred steelmakers to use more refined nickel, driving cuts in pig-iron production, according to Morgan Stanley. The trend could be reversed should nickel prices keep rebounding.

There are signs that demand for stainless steel may be strengthening, according to MEPS (International) Ltd. The Sheffield, England-based industry consultant predicts a 5.8 percent gain in global stainless-steel output to a record 33.9 million tons in 2012.
Biggest Producer

Lower prices may hurt earnings of producers. OAO GMK Norilsk Nickel, the biggest producer, will report a 5.8 percent decline in net income this year to $4.49 billion, according to the mean of seven analyst estimates compiled by Bloomberg. Nickel accounted for 53 percent of its sales last year, data compiled by Bloomberg show.

Norilsk expects nickel to average $19,000 in its 2012 budget, two people with knowledge of the matter said last month, down 17 percent from the LME’s benchmark three-month contract average of $22,865 last year.

Japan, the second-biggest consumer of the metal, contracted an annualized 2.3 percent in the fourth quarter, more than economists estimated, the Cabinet Office said Feb. 13. The International Monetary Fund cut its 2012 growth forecast on Jan. 24 to 3.3 percent from 4 percent and warned that Europe’s debt crisis threatened to derail the world economy. Europe will account for 23 percent of global nickel demand this year, according to Morgan Stanley.

“This will be a difficult year,” said Nick Trevethan, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Gold Imports by India May Drop From Record, Making China Biggest Consumer By Madelene Pearson and Swansy Afonso - Feb 20, 2012

Gold imports by India will decline for the first time in three years in 2012 as rising prices deter jewelry buyers and investors, potentially allowing China to overtake the nation as the world’s largest consumer.

Imports may drop 7.1 percent to 900 metric tons this year, according to the median estimate in a Bloomberg News survey of eight analysts, brokers and jewelers including Rajesh Exports Ltd. (RJEX), the biggest gold-jewelry exporter. India bought a record 969 tons in 2011, according to the World Gold Council.

Falling imports may help to halt a rally in global prices that's set for a 12th year. Gold has surged as investors seek to protect their wealth from volatility in stock markets, depreciating currencies and the threat of inflation.

“If we see higher gold prices, it implies lower imports into India,” Jeffrey Rhodes, head of precious metals at INTL Commodities Inc., said in a phone interview from Dubai. “The higher the gold price, the same amount of money buys less.”

Imports plunged 44 percent in the fourth quarter to 157 tons as jewelry demand slumped 44 percent to 103 tons and investment demand declined 38 percent to 70 tons, the council said on Feb. 16. Annual gold demand fell 7 percent to 933.4 tons in 2011, compared China’s 769.8 tons, it said.

Bullion futures in India rallied 32 percent last year, touching an all-time high and exceeding the 10 percent advance in global prices, as the local currency slumped to a record low against the dollar. Higher prices cooled demand among investors and jewelry buyers, said Ramesh Pahlajani, partner at Bherumal Shamandas Jewellers.
Bridal Trousseau

“With the prices of gold going up, nothing fits into the budget of the customer,” Pahlajani said in an interview. “Demand for gold has been quite subdued.”

In India, gold is traditionally bought during festival seasons and for marriages as part of the bridal trousseau. The number of days this year considered to be auspicious for weddings will be the fewest since 2004, potentially trimming gold demand, Ajay Mitra, managing director, Middle East and India at the council, said on Feb. 16.

“The amount of gold I buy has been reduced and we have to budget our expenses,” said Khushboo Jain, 24, while shopping in Zaveri Bazaar, Mumbai’s main jewelry market, ahead of her April wedding. “I am buying for my marriage and in the future it will be an investment for me in times of financial crisis.”

Gold for immediate delivery rose 0.5 percent to $1,731.35 an ounce at 4:46 p.m. in Singapore yesterday. The metal reached a record $1,921.15 an ounce in September.
‘Every Household’

“Gold is still something that every household believes in owning,” said S. Subramaniam, chief financial officer at Titan Industries Ltd. (TTAN), India’s biggest retailer of gold jewelry. “Gold is not just about an ornament or adornment, it’s about investment as well.”

Gold holdings in exchange-traded products were 2,388.683 tons on Feb. 17, near the record 2,392.976 tons reached Dec. 13, according to data tracked by Bloomberg. In India, investors held a record 96.14 billion rupees in funds backed by gold as of Jan. 31, according to the Association of Mutual Funds in India data.

“Demand in India has been slow as expenses have been rising because of inflation,” Rakesh Jain, owner of Mohanlal Otarmal Jewellers in Mumbai, said in an interview at his store in Zaveri Bazaar. “People do not have much savings to spend on gold. The buying capacity of people has gone down.”

To contact the reporters on this story: Madelene Pearson in Mumbai at mpearson1@bloomberg.net; Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.