Balco residual stake sale headed for arbitration

Sterlite Industries, India’s largest copper producer, may enter into an arbitration for the purchase of the residual 49 per cent government stake in Bharat Aluminium Company (Balco).

This comes after both parties failed to arrive at an agreement on an appropriate valuation of the stake, a company executive said.

Sterlite bought 51 per cent stake in Balco in March 2001 for Rs 552 crore when the National Democratic Alliance (NDA) government decided to divest the government stake in the public sector company.

Sterlite owned the right to purchase the remaining stake in Balco after a three-year embargo. According to the shareholders’ agreement, Sterlite sent a call notice with a cheque of Rs 1,099 crore to acquire the residual stake of Balco, after the expiry period in March 2004.

Differences in the value of the government’s residual stake cropped up after the United Progressive Alliance (UPA) came to power in 2004.

“Mediation has not helped to reach any settlement,” said Pramod Suri, chief executive officer, aluminium business, at Vedanta Resources, the parent company of Sterlite. “It may go to arbitration now,” said Suri in an interview with Business Standard.

Sterlite moved the Delhi High Court in 2006 following a Comptroller and Auditor General’s report, which pegged the value of the residual share much higher than what Sterlite had offered.

The court asked Sterlite and the government to settle the matter amicably, through conciliation or to go in for arbitration. The government directed a committee of secretaries to strive for reconciliation as directed by the high court.

In May this year, the committee of secretaries recommended that to discover the correct price of the stake in the unlisted company, the government should sell its 10 per cent stake in an initial public offer (IPO). In July, the Cabinet Committee on Economic Affairs (CCEA) approved the IPO after the UPA parted ways with the Left.

Following Sterlite’s rejection of the IPO, both parties failed to reach any agreement on the matter. The dispute may go to an arbitration panel by the year-end or early next year. If arbitration fails, the case may be settled before a Supreme Court bench.