BackVedanta offers Rs16,000 cr for HZL, Balco stakes
Vedanta offers Rs16,000 cr for HZL, Balco stakes
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Mumbai: London-based Vedanta Resources Plc. has offered nearly Rs16,000 crore for buying the government’s residual stakes in Hindustan Zinc Ltd, or HZL, and Bharat Aluminium Company, or Balco, at a time when the government is hard pressed to raise funds to reduce its fiscal deficit. Analysts said the deal, if it goes through, seems like an inexpensive acquisition for Vedanta.
The United Progressive Alliance (UPA) government, on the other hand, would have to assess the fairness of the offer, weighing it against its urgent need to raise resources.
“We have offered to buy the residual stakes in Hindustan Zinc and Balco for a sum touching Rs16,000 crore. The government had asked us for an offer in January and we have written in to them," Agarwal, Vedanta’s chairman, said in an interview.
It is now up to the government to consider the offer, Agarwal said. He declined to reveal specifics of how the proposed buyout would be financed.
“If it is accepted, we are confident of raising the money" at short notice, Agarwal added.
Analysts tracking the metals and mining businesses seemed sceptical.
“I’m not sure the government will agree to it. It will consider the fair value of these assets," said Jatin Damania, an analyst at Mumbai-based brokerage SBICAP Securities Ltd.
Damania agreed that Vedanta was in a better bargaining position given the government’s need to reduce its fiscal deficit, expected to be 5.6% of gross domestic product in the year to 31 March, against a budget estimate of 4.6%.
Dicksey Mathew , a sector analyst with HDFC Securites Ltd, wrote to clients in a 29 February note that purchasing the government’s residual stakes would require “$3.5billion for Hindustan Zinc and another $1billion for Balco" -- pegging the transaction at Rs22,144.5 crore at the current exchange rate.
Calls made to Haleem Khan, disinvestment secretary in the ministry of finance, went unanswered.
On 26 February, Mint had reported that Vedanta’s proposal was being studied by a committee of secretaries and would eventually be decided on by a group of ministers.
Sterlite Industries Ltd Balco in 2001 became the first big-ticket divestment for the government. Agarwal’s Sterlite Industries bought a 51% stake in the company for Rs551 crore amid charges of undervaluation then and was stuck in a long-drawn arbitration process in the past few years. Sterlite bought the stake in HZL for more than Rs750 crore in 2003.
“HZL is very useful to Sterlite. With Rs5,000 crore in profits and Rs16,000 crore of cash on its books, HZL is a cash cow and I’m not sure government would want to lose that at the current valuation quoted by Vedanta," said Damania. “The charm of Balco lies in its bauxite mines."
He added that while there were clear synergies from acquiring the minority stakes, Vedanta or Sterlite might need to raise a “bridge loan of $3-4 billion" in the short term.
Both debt and bauxite are sticky issues for the Vedanta group right now. Its loss-making subsidiary Vedanta Aluminium Ltd. -- now part of the newly formed holding company Sesa Sterlite -- was recently asked by the government to seek public consent afresh in Kalahandi district of Orissa before getting environmental clearance for expanding its alumina refinery and power plant.
It was asked to stop expanding its refinery in Lanjigarh from 1 million tonnes (mt) to 6 mt in October 2010 because of environmental concerns. Besides that, it has to win a Supreme Court case that allows it to mine bauxite, a key ingredient for aluminium manufacture, in Orissa’s Niyamgiri hills.
A corporate restructuring proposal, which will consolidate all its zinc, silver, aluminium, iron ore, copper, power, oil and gas businesses under Sesa Sterlite, has been received with some discomfort by the analyst and investor community because it would transfer $5.9 billion of debt onto the books of the new entity, leaving the London-listed parent Vedanta Resources looking healthier.
The bulk of this debt was raised for the acquisition of a stake in Cairn India Ltd. Sesa Sterlite, which will have the liability on its books, will also hold the entire 58.9% stake in Cairn.
Hindustan Zinc Ltd fell 2.24% to Rs141.55 on the Bombay Stock Exchange on Thursday. The benchmark Sensex dropped 0.95% to 17,583.97 points. Sesa Goa Ltd fell 0.84% to Rs212.6, Sterlite Industries India Ltd closed almost flat at Rs.124.05.
Vedanta shares were up 1.04% at 5.30pm IST on the London Stock Exchange.
PTI contributed to this story.
bhuma.s@livemint.com
Also Read | Vedanta’s residual stake buy plan awaits GoM decision
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