Mumbai / London: India-focused mining group Vedanta Resources Plc. launched $1 billion (Rs4,740 crore) convertible bonds on Friday and its iron ore unit unveiled plans to boost output by more than half, helped by a takeover.
Shares in London-listed Vedanta slid 5.2% to 1,657 pence by 9.14 GMT, making it the biggest loser in the FTSE 100 Index due to expected dilution from the issue and as investors sold holdings to raise funds to invest in the bond.
The group’s Mumbai-listed Sesa Goa Ltd unit rose as much as 12%, the highest in a year, with the iron ore producer saying output would jump after it bought the mining assets of the Dempo Group for Rs1,750 crore.
Vedanta plans to spend the bond proceeds, which could increase in size by a quarter under an option to bookrunners JPMorgan Chase and Co., to help finance takeovers and to boost stakes in subsidiaries.
Investors have been pressing for a clean-up of complex cross holdings in the London-listed group, which posted a 75% fall in attributable profit last year, partly due to the impact of minority stakes.
In an initial stab at mopping up holdings, Vedanta said on Friday that it spent $120 million to boost its Sesa Goa stake to 55% from 53%.
Vedanta has previously said it wants to boost stakes in units Bharat Aluminium Co. Ltd and Hindustan Zinc Ltd, in which the Indian government holds stakes of 49% and 35%, respectively, as well as Sterlite Industries (India) Ltd, where minorities own 40%.
Vedanta—which has operations in India, Australia and Zambia—said the bonds would likely have a coupon of 4.50-5.50% and the conversion price was expected at a premium of 35-45%.
Sesa Goa provided a timely example of Vedanta’s need for more funds to finance takeovers. The Dempo acquisition would help Sesa lift iron ore output by more than half to 22.75 million tonnes in 2009-10, managing director P.K. Mukherjee said over telephone. “Last year, we had a production of 15 million tonnes. This year, we are likely to have volume growth of 25%. Plus, you could add 4 million tonnes (from the acquisition).”
Mukherjee said the company was hungry for more acquisitions. “We are continuously looking for it. Targets are always there,” he said, when asked if there would be more acquisitions this year.
The Dempo acquisition would result in cost savings for Sesa and was a step towards consolidation in the domestic industry, which lags far behind global players such as Australia’s Rio Tinto Plc. and Brazil’s Vale SA, said A.S. Firoz, an independent strategy consultant for steel and natural resources.
Shares in Sesa have risen about 140% this year, outpacing the main index that gained about 60%. The firm is India’s biggest private sector iron ore miner, Mukherjee said.