ALSO READIndian billionaire Agarwal to invest up to 2 billion pounds in Anglo American Indian billionaire Agarwal targets Anglo in early sign of mining M&A revival Anglo American sees further 40 percent gain in productivity by 2020 Lacking local support, De Beers shelves Ontario diamond mine expansion Anil Agarwal to buy stake worth $2.4 bn in Anglo American
By Barbara Lewis and Zandi Shabalala
Agarwal, who has majority control of Hindustan Zinc Ltd
Anglo, which has a market value of around 16.6 billion pounds, refused to comment. It has also declined to comment on reports it has rebuffed previous approaches for a tie-up with Agarwal's Hindustan Zinc.
Anglo's shares rose nearly 9 percent, outperforming the broader sector <.FTNMX1770>, which rose 4 percent. Vedanta's
Christopher LaFemina, analyst at Jefferies, said the mining sector, which spent last year putting its balance sheets in order, might be making an early return to M&A activity. Many had not expected that until next year.
"Our expectation has been that the mining sector recovery would comprise three separate phases," LaFemina said, referring to balance sheet recovery, then improved cash flow and finally M&A. "It is possible that Phase 3 is beginning now."
Agarwal, who has four decades of experience as an entrepreneur, founded the Vedanta Group in 1979. It has copper operations in Zambia and a zinc mine in South Africa, Anglo American's heartland.
"His dream is to have Vedanta as one of the big diversified miners at some point," the source said.
Some analysts see Agarwal's move as a new attempt to fulfil his ambition to have a major footing in South Africa as well as in his native India, a goal he has aired in the Indian press.
"From a strategic point of view, some kind of deal could potentially hand Anglo a solution to their problem of perceived 'overweighting' towards South Africa," said Paul Gait, an analyst at Bernstein.
Another source connected to the transaction said Agarwal was limiting any risk by using a convertible bond rather than cash to finance the deal. The mandatory exchangeable bond for 2 billion pounds is due in 2020 and is led by J.P. Morgan.
Volcan will issue the bond to fund the share purchase and it will be secured by the purchased shares.
The structure of the bond limits any downside, the sources said, adding the advantage of buying into Anglo American, whose portfolio includes diamonds and platinum, was to diversify Agarwal's holdings.
($1 = 0.8159 pounds)
(additional reporting by Clara Denina in London, Clara Ferreira Marques in Singapore and Sanjeeban Sarkar in Bengaluru; Editing by Jane Merriman and Elaine Hardcastle)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)