Tailwinds give Agarwal a reason to cheer

Govts removing hurdles from Vedanta projects but high debt worries investors

With the Vedanta group set to bid for the Union government's residual stake in Hindustan Zinc (HZL) and Bharat Aluminium (Balco), and the Odisha government assuring bauxite to its Lanjigarh aluminium project, the tide is finally turning for Anil Agarwal, who till recently was facing fire from the government and environmentalists.

Agarwal, 61, now a London-based billionaire but who'd begun as a small metal trader from Patna when in his teens, says: "Now, I expect the government to have clear reforms and forward-looking policies at the top of their agenda, to open India's potential."

After the Bharatiya Janata Party came to power, the government has put the disinvestment of HZL and Balco on fast track. In sharp contrast to the previous UPA government, which sat on the proposal and also directed a Central Bureau of Investigation probe on the original divestment of HZL by the then Atal Bihari Vajpayee government when Agarwal took a majority share in the company in 2000.

SESA STERLITE DEBT (Rs cr)

• 2014 - 80,566 cr
• 2015* - 85,963 cr
• 2016* - 89,381 cr
• 2017* - 89,166 cr

*Consolidated debt, estimates Source: Company

The HZL buyout is important for Agarwal as he will get access to its massive cash and investments, helping the group to reduce its massive debt. His Sesa Sterlite's financial statement for 2013-14 highlights a tight liquidity, with the company's standalone business having free cash flow of only Rs 1,500 crore. Analysts say the standalone cash flow is not sufficient to meet its interest obligation of Rs 5,400 crore. Besides, Sesa Sterlite is also facing a ministry of corporate affairs petition challenging the merger between Sesa Goa and Sterlite, saying this had resulted in tax avoidance of Rs 1,500 crore. The matter is pending.

Interestingly, Agarwal is one of the biggest corporate donors to both the BJP and the Congress, the two major, and opposed, political parties. In February this year, the Delhi High Court had sought a probe into donations from Vedanta, as it is registered abroad. Operationally, too, there are good signs. After a brief pause, Sesa Sterlite will start commissioning its few major projects. This includes expansion of the Balco and Jharsuguda smelters and power projects in Talwandi, apart from resumption of Karnataka iron ore sales. In the latter segment, analysts expect a strong recovery in earnings.

While Agarwal is happy with the government, his shareholders are not. The minority shareholders say Agarwal's recent move to make cash-rich Cairn India give a $1.25-billion loan to Sesa Sterlite at generous terms is not in their interest. "The loan shows Cairn's complete disregard on disclosure norms and welfare of minority shareholders. Sebi (Securities and Exchange Board of India) should immediately start an investigation into this and reverse the loan," says Shriram Subramanian, founder of InGovern Research Services. Another project keeping Agarwal busy is Lanjigarh. One of the main reasons why Agarwal made global headlines was due to his clash with environmentalists and tribals due to this project. After Supreme Court-mandated village council meetings, the tribals forced the company out of the bauxite-rich Niyamgiri hills. Global investors, including the Church of England, sold their stock in Vedanta, saying the project was not in the interests of tribals. As a result, the group's Rs 10,000 crore project is now operating at only 25 per cent of capacity.

Vedanta officials say the state government has now assured them of bauxite supply from other sources in the state. If that happens, Agarwal, now a non-executive chairman, can certainly look forward to retire in peace and concentrate on what he says is his prime desire, social work. He says child and women welfare are two areas close to his heart.