Sterlite raises $1.5 bn via ADS

Largest such issue in two years; equity dilution pulls down firm’s domestic stock 6 per cent

Sterlite Industries, India’s largest copper producer, has raised $1.5 billion (Rs 7,305 crore) through American Depository Shares (ADS), the largest US share sale from India in two years, to develop its power generation business and fund acquisitions.

The US offering was priced at $12.15 each, a discount of 6 per cent to Wednesday’s closing price for Sterlite in the US and one per cent higher than the minimum price of $12.14 set by Sterlite. Each ADS represents one equity share.

The ADS sale is the biggest from India since ICICI Bank raised $2.46 billion in June 2007. Earlier the same month, Sterlite raised about $2 billion in an ADS offering. Today’s development suggests that the international market for funds is not as tough as most companies had anticipated.

The company’s domestic stock price took a beating and closed 6.1 per cent lower at Rs 590 on the Bombay Stock Exchange. This was because of the dilution in the earnings per share following Sterlite’s decision to issue an additional 123 million shares (17 per cent of the total stock) through its ADS.

London-listed parent Vedanta bought $500 million of the issue, reducing its stake in Sterlite to 57.5 per cent from 61.7 per cent on the expanded equity base.

Vedanta Resources already has $6 billion to $7 billion in cash. “That is all committed money, nothing is spare,” Anil Agarwal, Vedanta chairman said. “We will use the money raised through the ADS for our power projects and acquisitions,” he said.

Sterlite’s ADS sale was handled by JPMorgan and Morgan Stanley, who have an over-allotment option equivalent to 15 per cent of the offering size. Last month, Sterlite obtained shareholder approval to raise funds through issue of securities.

Sterlite is building power projects to add 11,000 Mw, half of which would be for commercial use and the other half for captive purposes, by 2011-12. Of this, about 2,000 Mw is ready and in use, built with an investment of Rs 9,000 crore. The company requires another Rs 47,000 crore to set up the other plants.

Besides, the company has made an offer to buy the US-based copper miner Asarco for about $1.87 billion. The company is also in the process to buy the residual 49 per cent stake in Bharat Aluminium Company (Balco) and 29.5 per cent stake in Hindustan Zinc from the government, for which it would require about Rs 10,000 crore.

Sterlite has also changed its plan to get into the steel business. It will now get into a joint venture, instead of the earlier plan of going alone.