A Bil­lion-Dol­lar Of­fer:

Anil Agar­wal pro­poses to delist his flag­ship com­pany Vedanta Re­sources from LSE and take it pri­vate as com­mod­ity prices re­bound and boost the com­pany's bal­ance sheet.

India Business Journal - - CONTENTS - AMMAR ZAIDI

Anil Agar­wal pro­poses to delist his flag­ship com­pany Vedanta Re­sources from LSE and take it pri­vate as com­mod­ity prices re­bound and boost the com­pany's bal­ance sheet.

Min­ing mogul Anil Agar­wal's fam­ily trust has made a firm of­fer to buy 33.47 per cent of non-pro­mot­ers' shares of Vedanta Re­sources in a deal that val­ues the con­glom­er­ate at $3.07 bil­lion (nearly Rs 21,000 crore). "Un­der the terms of the of­fer, Vedanta's share­hold­ers will re­ceive $10.89 (more than Rs 741) per share in cash for each Vedanta share," the com­pany has said in a reg­u­la­tory fil­ing, de­tail­ing about the $1-bil­lion (a lit­tle over Rs 6,800 crore) of­fer.

In ad­di­tion, the share­hold­ers will be en­ti­tled to re­ceive a div­i­dend of $0.41 (about Rs 28) per share in re­spect of the twelve months ended March 31, 2018. "Taken to­gether, the of­fer price and the FY18 div­i­dend in ag­gre­gate rep­re­sent to­tal value of $11.30 (over Rs 769) per share, which rep­re­sents a pre­mium of ap­prox­i­mately 32.4 per cent to the clos­ing price of 647 pence per Vedanta share on June 29, 2018," a state­ment from the Vedanta re­veals.

On July 2, Vedanta had an­nounced Mr Agar­wal's plans to delist the com­pany. The com­pany's of­fer was made within the manda­tory 28 days through Vol­can In­vest­ments, which cur­rently holds 66.53 per cent of Vedanta. In the fil­ing, Vedanta has dis­closed that the share­hold­ers will be fi­nanced through a $1.1-bil­lion (nearly Rs 7,500 crore) loan from Credit Suisse's Sin­ga­pore branch and Stan­dard Char­tered. Vol­can In­vest­ments is the hold­ing com­pany, wholly owned by the Anil Agar­wal Dis­cre­tionary Trust. Mr Agar­wal is also An­glo Amer­i­can's big­gest share­holder with a nearly 20 per cent stake through Vol­can In­vest­ments.

Sim­pli­fied struc­ture

Vedanta Re­sources, which owns cop­per, alu­minium, iron ore, oil and steel busi­nesses, was set up in 2003 and be­came the first In­dian com­pany to list on the Lon­don Stock Ex­change (LSE) in the same year. It has, of late, been fac­ing en­vi­ron­men­tal pres­sure on its op­er­a­tions.

As many as 13 pro­test­ers were killed in po­lice fir­ing at the com­pany's cop­per smelter in Thoothukudi in Tamil Nadu in late May, which had led to po­lit­i­cal op­po­si­tion to the com­pany in the UK and a fall in its share price. Pro­test­ers were fired upon by the po­lice in Thoothukudi or Tu­ti­corin when they were de­mand­ing the clo­sure of Vedanta's cop­per smelter as they saw it as pol­lut­ing the en­vi­ron­ment. There were de­mands from some quar­ters that the com­pany be delisted from LSE.

Mr Agar­wal has, how­ever, de­nied any link be­tween the delist­ing and the protests. There is "no link at all" with the Tu­ti­corin in­ci­dent, he had stressed ear­lier. "This is driven by the de­sire to sim­plify the cor­po­rate struc­ture," he has rea­soned out.

In the stock ex­change fil­ing, Mr Agar­wal has termed the of­fer as "a nat­u­ral pro­gres­sion of our jour­ney to sim­plify the Vedanta Group's cor­po­rate struc­ture". Stat­ing that the Lon­don list­ing has served the com­pany well since 2003, he has noted that given the sub­se­quent growth of

un­der­ly­ing busi­nesses and the ma­tu­rity of the In­dian cap­i­tal mar­kets, a sep­a­rate Lon­don list­ing is no longer nec­es­sary to achieve the Vedanta Group's strate­gic ob­jec­tives.

The com­pany no longer sees the Lon­don list­ing as nec­es­sary to ac­cess cap­i­tal, and the deal is ex­pected to sim­plify Vedanta's cor­po­rate struc­ture. "In tak­ing this im­por­tant step to­wards greater group sim­pli­fi­ca­tion, we wanted to en­sure that the independent share­hold­ers of Vedanta were pro­vided with the op­por­tu­nity to exit on at­trac­tive terms, and I be­lieve, this rec­om­mended of­fer will de­liver on that ob­jec­tive," he has added.

Big gains

If Vol­can suc­ceeds in in­creas­ing its stake to 90 per cent or above, it is likely that Vedanta will be delisted from LSE, mak­ing it a pri­vate com­pany. Vol­can is a pri­vate com­pany with lim­ited public in­for­ma­tion on its fi­nances. In 2017, it had raised an es­ti­mated $4.4 bil­lion debt through an is­sue of con­vert­ible notes to buy a 19.35 per cent eq­uity stake in An­glo Amer­i­can. For the deal, Vol­can had pledged 33 per cent of Vedanta's shares as se­cu­rity for an­nual in­ter­est pay­ment of $185 mil­lion.

If this of­fer goes through, Mr Agar­wal will be left with just two Mum­bai-listed com­pa­nies - Vedanta, which houses his sprawl­ing cop­per, sil­ver, lead, iron ore, alu­minium, min­ing, power and oil and gas busi­nesses, and Hin­dus­tan Zinc. Vedanta also has an Amer­i­can De­pos­i­tory Re­ceipt (ADR) list­ing on the New York Stock Ex­change.

Vedanta Re­sources had listed on LSE in De­cem­ber 2003, raising just over 500 mil­lion pounds from a sale of shares at 390 pence apiece. Vedanta Re­sources owns 50.1 per cent of Vedanta and has nearly 65 per cent hold­ing in Hin­dus­tan Zinc. It also owns 79.4 per cent of Konkona Cop­per Mines in Zam­bia, Africa.

Vol­can In­vest­ments be­lieves that the of­fer pro­vides an op­por­tu­nity to con­tinue the suc­cess­ful de­vel­op­ment of the Vedanta Group's busi­ness in a sim­pli­fied and ef­fi­cient man­ner. Im­por­tantly, Vedanta's share­hold­ers also re­tain the abil­ity to in­vest in the Vedanta Group through Vedanta, where the ma­jor­ity of the Vedanta Group's prof­its and cash flow are gen­er­ated, ei­ther through the shares listed on the In­dian stock ex­changes or through the ADRs listed on the New York Stock Ex­change, the fil­ing has added.

Sim­pli­fi­ca­tion of the cor­po­rate struc­ture of Vedanta Re­sources and its sub­sidiaries has been a key, on­go­ing ob­jec­tive for the Vedanta Group. Over the past sev­eral years, the metal and min­ing con­glom­er­ate has sim­pli­fied its cor­po­rate struc­ture by merg­ing var­i­ous In­dian sub­sidiaries to cre­ate Vedanta. It has also sub­se­quently merged Cairn In­dia into Vedanta. "Vol­can In­vest­ments be­lieves that now is the right time to take an­other im­por­tant step in sim­pli­fy­ing the struc­ture of the Vedanta Group by re­mov­ing a du­plica­tive stock ex­change list­ing, which it be­lieves to be in the best in­ter­ests of all stake­hold­ers," the fil­ing has added.

Vedanta Re­sources was orig­i­nally cre­ated to pro­vide a plat­form for the Vedanta Group to ac­cess a deeper pool of eq­uity and debt cap­i­tal in the United King­dom and global mar­kets, when its sub­sidiaries were smaller and less liq­uid and the In­dian cap­i­tal mar­kets were less ma­ture. The list­ing has proved to be suc­cess­ful, sup­port­ing sig­nif­i­cant ex­pan­sion across the Vedanta Group's orig­i­nal as­sets and en­try into a num­ber of new com­mod­ity sec­tors, in­clud­ing oil and gas, iron ore and power while de­liv­er­ing sig­nif­i­cant pos­i­tive re­turns to all Vedanta share­hold­ers.

The min­ing and metal con­glom­er­ate re­turned to profit in the financial year ended March 2018 by post­ing profit be­fore tax of $1.4 bil­lion (over Rs 9,500 crore) against a loss of $5 bil­lion (around Rs 34,000 crore) a year ear­lier. The com­pany's rev­enue in­creased by 33 per cent to $15.4 bil­lion (nearly Rs 1,05,000 crore) dur­ing the pe­riod un­der re­view, driven by firmer com­mod­ity prices and vol­ume ram­pups. Vedanta has been ben­e­fit­ing from a strong re­cov­ery in prices of met­als and oil and gas. No won­der, Mr Agar­wal's plan of tak­ing the com­pany pri­vate is timed well as com­mod­ity prices re­bound and boost Vedanta's bal­ance sheet.

"The of­fer to delist Vedanta from LSE is a nat­u­ral pro­gres­sion of our jour­ney to sim­plify the Vedanta Group's cor­po­rate struc­ture."

ANIL AGAR­WAL

Chair­man, Vedanta Re­sources

Vedanta re­turned to profit in FY18 from a loss a year ear­lier, driven by firmer com­mod­ity prices and vol­ume ramp-ups.

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