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Vedanta ups the ante for Balco, Hindustan Zinc

Bloomberg  |  New Delhi/Mumbai 

Billionaire Anil Agarwal’s Vedanta Group has offered Rs 17,000 crore ($3.4 billion) to buy the government’s remaining stakes in Hindustan Zinc Ltd and Bharat Aluminium Co, a ministry official said.

A panel of bureaucrats from ministries, including law, corporate affairs, finance and mining, met yesterday and decided to seek the advice of a group of ministers on the proposal, Vishwapati Trivedi, secretary at the ministry of mines, told reporters in New Delhi.

Buying the stakes will give Vedanta’s Mumbai-based unit Sterlite Industries (India) Ltd. control over a combined 964,000 tonnes of annual zinc and lead-producing capacity and full ownership of a two million tonne-a-year bauxite mine. The government is seeking to narrow fiscal deficit through steps including asset sales and capping of expenses. “This will be positive for Sterlite,” Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt, said in Mumbai. He has an outperform recommendation on Sterlite and expects the shares to rally 59 percent in 12 months. “The cash that Sterlite will spend will come back in the form of surplus from Hindustan Zinc.”

The zinc maker has cash and equivalents of $3.35 billion, according to data compiled by Bloomberg.

Pavan Kaushik, spokesman at Hindustan Zinc, declined to comment. Senjam Raj Sekhar, a spokesman at Vedanta Resources Plc, didn’t respond to two calls made to his mobile phone and a text message seeking comments.

Government stake
Vedanta offered Rs 15,000 crore for one company and Rs 2,000 crore for the other, Trivedi said, without identifying them. The government’s 29.5 per cent stake in Hindustan Zinc is valued at Rs 16,200 crore at the current share price. Hindustan Zinc fell 0.2 per cent to Rs 130 at 9.19 am in Mumbai trading, giving it a market value of $10.8 billion. Sterlite gained 0.3 per cent to Rs 115.80.

Sterlite, the nation’s biggest copper producer, owns 64.9 per cent of Hindustan Zinc. The company may complete the transaction this year, Agarwal said on February 25. It bought 51 per cent of Bharat Aluminium, which owns the bauxite mine, in 2001 and a majority stake in Hindustan Zinc a year later.

Lack of full control at Hindustan Zinc has undermined decision-making at Vedanta. In 2010, Vedanta’s plan to buy Anglo American Plc’s Skorpion zinc mine in Namibia through Hindustan Zinc failed after the Indian government didn’t ratify the deal. Vedanta completed the purchase through Sterlite.

Combining Units
Agarwal is combining the group’s publicly traded Indian units into a new company after an $8.67 billion purchase of oil producer Cairn India Ltd, Vedanta said February 25. Sesa Goa Ltd, India’s largest iron-ore exporter, will absorb Sterlite in an all-share deal.

Vedanta Aluminium Ltd and Madras Aluminium Co will also be merged into the new company, Sesa Sterlite.

Vedanta plans to transfer debt of $5.9 billion to Sesa Sterlite, reducing outstanding loans by 61 percent to $3.8 billion and cutting debt-service costs by $300 million for the year ending March 31, 2013, the company said.

India’s budget deficit may widen to 5.9 per cent of gross domestic product in the year ending March, compared with a target of 4.6 per cent. Finance minister Pranab Mukherjee aims to cut the shortfall to 5.1 per cent of GDP in the next financial year.

First Published: Fri, March 23 2012. 00:46 IST