Mumbai: Entrepreneur Anil Agarwal is looking to enter the steel business—with a partner.
Sesa Goa Ltd, which acquired VS Dempo and Co. Pvt. Ltd for Rs1,750 crore in June, has begun talks with a few Japanese and European steel companies for building a steel plant in India, said Agarwal, the chairman of Vedanta Resources Plc.
The London Metal Exchange-listed Vedanta Resources is Agarwal’s holding company and owns controlling stakes in Sterlite Industries Ltd, Sesa Goa, Vedanta Aluminium Ltd and Konkola Copper Mines Plc. in Zambia.
“We are iron ore producers and not specialists in making steel. We will partner with somebody who can provide us technology and management,” Agarwal said in a telephone interview from London after Sterlite Industries raised $1.5 billion (Rs7,305 crore) through American Depositary Shares (ADS) at $12.15 a share.
“We use only 20% of the iron ore in Sesa Goa to make pig iron and rest we trade,” he added.
The iron ore mines of Sesa Goa have a capacity to produce 50 million tonnes (mt) of iron ore that can easily feed a 10 mt steel plant, Agarwal said.
India’s largest steel maker Tata Steel Ltd is one of the lowest cost steel producers across the globe primarily because of its captive mines.
Technically, 1.6 tonnes of iron ore can produce one tonne of steel.
An analyst advised caution while evaluating Vedanta’s latest diversification.
“We have to wait and watch as steel business for Vedanata is a significant diversification from its core business,” said Prasad Baji, an analyst with Edelweiss Securities Ltd, a Mumbai brokerage.
Vedanta Resources, majority shareholder of Sterlite, India’s biggest copper producer, participated in its subsidiary’s ADS offering and bought $500 million worth of shares either directly or through another subsidiary, said a company statement. However, it still diluted the parent’s holding, which came down to 57.5% from 61.7% .
Shares of Sterlite Industries shares dropped 6.12% on the Bombay Stock Exchange on Thursday to close at Rs590.15 each even as the exchange’s benchmark index, the Sensex, closed flat at 14,250.25.
JP Morgan Securities Inc. and Morgan Stanley and Co. International Plc were joint bookrunners for Sterlite’s ADS issue, that closed in six hours. “Investors bought the story of Sterlite Industries’ execution capability, reforms in power sector and India’s growth story,” said a JP Morgan spokeswoman.
Sterlite Industries will use the money to fund its equity contribution to a 1,980MW power plant in Punjab and another 1980MW captive power plant to feed Vedanta Aluminium in Orissa.
“We will invest nearly Rs45,000 crore to generate 10,000MW of power in the country,” Agarwal said.
Agarwal aims to raise his conglomerate’s power-generation capacity at least five-fold in the next three years to 11,000MW and sell half the output in the market as his Sterlite Energy unit competes with larger rivals such as Reliance Energy Ventures Ltd and NTPC Ltd.
India has allocated Rs1.79 trillion in the current Budget to build networks of roads, telephones, electricity and irrigation.
“Sterlite needs money to fund its ambitious plans,” Rakesh Arora, an analyst at Macquarie Group Ltd.
Last month, Sterlite Industries raised nearly Rs10,000 crore from banks to build a 2,400MW power plant in Jharsuguda in Orissa.
Commenting on Sterlite Industries’ bid for American Smelting and Refining Co. Llc, or Asarco, Agarwal said his company would not increase its offer. Instead, he would expand his capacity in India to have nearly 10% of the global production in zinc, copper and aluminium.
According to him, zinc capacity will be raised from 754,000 tonnes to 1.06 mt; aluminium from 345,000 tonnes to 2.5 mt and copper from 4.05 lakh tonne to 3 mt.
Vedanta said last month it plans to invest $20 billion to increase metal and power production and buy bankrupt copper miner Asarco through Sterlite. Asarco, the third largest copper producer in the US, owns mines holding about 5 mt of copper. The 100-year-old company produced 235,000 tonnes of refined metal in 2007.
Sterlite, which first bid for Asarco in May 2008, last month increased its offer to $1.87 billion from $1.7 billion.
Agarwal said his priority is to keep funds ready to exercise Sterlite Industries’ rights to acquire government’s 49% stake in Bharat Aluminium Co. Ltd, or Balco, and an additional 20% in Hindustan Zinc Ltd.
Sterlite Industries had bought a 51% stake in Balco in 2004 and 64.9% in Hindustan Zinc in the government’s disinvestment programme.
“We may have to pay $1.7 billion to purchase these shares,” he said.
Sterlite Industries had raised $2 billion in 2007 though an earlier ADS.
Debarati Roy and Madelene Pearson of Bloomberg contributed to this story.