Sterlite to up offer price for govt's 49% in Balco

MUMBAI, MAR 21:  Anil Agarwal's flagship Sterlite Industries is planning to raise its offer price to buy out the union government's 49% residual stake in the erstwhile public sector aluminium major Bharat Aluminium (Balco). Sterlite had earlier offered Rs 1,098 crore – doubling the valuation it itself paid to buy a majority 51% in Balco in 2001 – but negotiations have come unstuck over the last three years as the government continued to demand an even higher valuation.

Negotiations on a reconciliation with the union government are currently on and are expected to be completed within the next two months, sources close to the talks told FE. Sterlite, however, declined to comment on how much it was willing to raise its price by.
 
"The negotiations for a reconciliation are progressing positively and we will soon come up with a blueprint of mutually acceptable terms," said sources and added that the compensation package will be designed keeping in mind the loss of time.

Sterlite had bought a majority stake in Balco for Rs 551 crore in 2001. Between 2001 and 2006, Balco has commissioned a 2.5 lakh tonne per annum aluminium smelter, increasing its capacity from 1 lakh to 3.5 lakh tonne and an associated 540 MW captive power plant at a total cost of $550 million. The negotiations are apparently on to settle issues over the cash infused by Sterlite to complete these projects without any incremental stake hike.

Balco, in the meanwhile, has turned around under the management. "It is a test case how privatisation can succeed," a metals analyst with a leading brokerage said.

The government had earlier appointed SBI Capital Markets to do a valuation of Balco. SBI Capital Markets had stated in its report that the "fair business value of Balco is Rs 1,719.43 crore."
 
Effectively then, 49% residual stake in Balco held by the government comes to Rs 842.52 crore. However, the Cabinet Committee on Economic Affairs had returned the cheque of Rs 1,098 crore to Sterlite Industries following the Attorney General's directive.

Last May, Sterlite had sent a legal notice to the government, alleging a "breach of shareholders' agreement". Balco apart, Sterlite is also interested in picking up the residual 29.53% stake in Hindustan Zinc, the call option for which can be exercised after April 11, this year.