Govt mulls options on Balco residual stake sale

Government is once again looking at a pricing strategy to resolve the long-pending issue of sale of its residual 49 per cent stake in Bharat Aluminium Company (Balco) to Sterlite Industries. The Cabinet Ccommittee on Eeconomic Affairs discussed this in its meeting last week.

“The government is working on an amicable pricing formula,” said a person familiar with the development. “The arbitration would be withdrawn if both the parties agree on the pricing,” he said. Disinvestment Secretary Sunil Mitra could not be reached for his comment.

The issue is under arbitration since August, with a three-judge panel looking into the issue. The next meeting of the panel is scheduled in the last week of December. “We are not in a position to make any comment, as no such proposal has been received by us from the government,” said a Vedanta Group spokesperson.

 

Sterlite, a subsidiary of London-listed Vedanta, bought 51 per cent of Balco in March 2001 for Rs 552 crore, when the National Democratic Alliance government decided to divest the government’s stake in the public sector company. Sterlite owned the right to buy the remaining stake in the aluminium producer after a three-year period, but ran into differences with the government over valuation.

After the embargo expired in March 2004, Sterlite sent the government a call notice and a cheque of Rs 1,099 crore for Balco’s residual stake, in accordance with the shareholders’ agreement.

Differences in the value of the government’s residual stake cropped up after the United Progressive Alliance came to power in May 2004 and the issue was referred to the Attorney General, who termed the call option invalid under Section 111 A of the Companies Act. He said, however, that the residual stake could be sold at the market price.

In 2006, Sterlite moved the Delhi High Court for interim relief, to ensure the government did not sell the stake to anyone else. The high court asked for reconciliation and arbitration.

The government accordingly directed a committee of secretaries to explore ways to reconcile the issue. In May last year, the committee of secretaries recommended that to discover the correct price of the stake in the unlisted company, the government should sell 10 per cent in an initial public offer (IPO). In July, the Cabinet Committee on Economic Affairs (CCEA) approved the IPO after the ruling UPA parted ways with the Left parties. Sterlite, however, rejected the IPO on the ground that it holds the right to buy the residual stake, after which the dispute then went to arbitration this year. If the arbitration fails, the case may be settled before a Supreme Court bench.

This month, the government accelerated its move of divestment in public sector units. The government has asked all ministries to compile a list of state-run companies for partial sale of stake and listing on stock exchanges. The government is also keen on speeding up the long-pending Balco issue.