Board meeting stokes hope of Vedanta shake-up

 

 

News that the directors of non-ferrous metals producer Sterlite Industries would hold a weekend meeting sent the unit's stock over three percent higher, and Vedanta's own underperforming shares up more than four percent in heavy trade.

 

 

A weekend statement would circumvent the differing regulatory requirements of Vedanta subsidiaries' multiple listings.

 

 

Sterlite, 55-percent owned by Vedanta, has been expected to merge with sister company and iron ore miner Sesa Goa, itself 55-percent owned, as part of efforts to bring an increased number of products under one roof, consolidate the miner's structure and give the group better access to cash.

 

 

Vedanta, which has a debt servicing burden of $500 million a year, confirmed this week it aimed to simplify its structure but said only it reviewed options "on an ongoing basis".

 

 

The FTSE-100 miner, which has underperformed the sector by more than 25 percent since the start of last year, currently has a structure with over a dozen units, none fully owned and several separately listed, producing everything from oil to aluminium to copper and zinc.

 

 

Analysts say a simpler structure could make it easier to pay down debt and boost its shares.

 

 

"It is a great opportunity because this has been an issue with the group, and investors want to see a consolidated structure," an analyst at Mumbai's Edelweiss Securities said.

 

 

Ahead of Saturday's statement, shares in Sterlite, valued at $7.9 billion, closed 3.1 percent higher in a weak Mumbai market . Shares in Sesa, valued at $4 billion, closed down 0.2 percent. Vedanta shares closed up 4.5 percent in London trading.

 

 

BNP Paribas, in a note to clients, had estimated that between 1.53 to 1.92 shares of Sterlite for every one share of Sesa Goa would be a fair swap ratio for the transaction.

 

 

A ratio substantially different from this would be unfavourable for one or the other company, the brokerage said.

 

 

SECOND TIME LUCKY?

 

 

Any merger between Sterlite and Sesa Goa would be Vedanta's latest effort to overhaul its group structure.

 

 

A similar exercise in 2008 was aborted after strong investor opposition to the plan and the valuations of some of Vedanta's African assets.

 

 

"Restructuring is subject to approvals from a number of minority shareholders and regulators in the U.K. and India," ratings agency Standard & Poor's said in a statement.

 

 

"The restructuring will take time to implement because the company could face difficulties in getting these approvals," it said, but added the plan would improve Vedanta's ability to service its debt obligations.

 

 

Sterlite held cash balances of 215.5 billion rupees ($4.4 billion) at December-end, while Sesa Goa held cash of 4.5 billion rupees ($92 million).

 

 

Analysts said they would keenly watch how the shareholding in oil and gas producer Cairn India would be restructured, with reports suggesting the stake directly held by Vedanta could also be folded into a merged Sesa Goa-Sterlite.

 

 

Vedanta acquired a majority stake in Cairn India late last year in an $8.7 billion deal, buying most of the stake from British explorer Cairn Energy Plc. However, 20 percent of the group's shareholding is held under Sesa Goa.