A man of steel: Vedanta's Agarwal enters steel biz with Electrosteel buy

The successful bid for debt-ridden Electrosteel marks this controversial entrepreneur's first foray into the steel business anywhere in the world

Some nights before he goes to sleep, Anil Agarwal says he dictates memos on a small voice recorder. The next day, he gives it to his secretary for follow up. “At that hour, it is better to record anything that comes to mind otherwise you may forget,” he explains. 

Was bidding for debt-ridden Electrosteel Steels, the first of the 12 indebted companies identified by the Reserve Bank of India for resolution under the bankruptcy code to find a buyer, one of his late-night ideas? For the 65-year-old chairman of the London-based metals and minerals major Vedanta Group, this purchase certainly marks a significant step forward; it is his first foray in the steel business after years of waiting.  

Electrosteel moves forward the vertical integration of Agarwal’s mining business in India, the country that accounts for more than 90 per cent of his group’s revenues. With an estimated 10 million tonne per annum iron ore mining capacity coming up in Jharkhand, Vedanta is the largest domestic producer of iron ore. So Electrosteel, that owns and operates a one million tonne per annum greenfield integrated steel manufacturing facility near Bokaro, Jharkhand, was a natural fit. Next, he is also eying Essar Steel, which is undergoing insolvency proceedings. Vedanta, in fact, has grown mainly through acquisitions whether it was Sesa Goa, Balco, Hindustan Zinc or Cairn. 

Agarwal, of course, likes to project his Indian businesses in robust nationalistic terms, even though he is based in London. “I am a son of the soil, so I am always investing in India,” he told Business Standard  last month. 

Winning the Electrosteel bid, however, did not come easily for the group, which had to contend with competition from Tata Steel, the Renaissance group and Edelweiss Asset Reconstruction Company. More than tough competitors, however, was the battle in the National Company Law Tribunal (NCLT) against charges of violating environment norms elsewhere. The alleged violations involved its Konkala Copper mines in Zambia, which would have made Vedanta ineligible to bid under the amended insolvency law. 

Also Read: NCLT approves Vedanta's resolution plan for insolvent Electrosteel http://mybs.in/2Vm9LIt  

“It (the problem with bidding) is just like the human body; if you want to find fault, you can always find one. I have put in the best bid...Even if we get Electrosteel, the company will not be even 1 per cent of our business,” Agarwal had said in the March interview.

On April 17, Vedanta announced that NCLT’s Kolkata bench had approved its resolution plan to acquire Electrosteel, which had won 100 per cent approval from the committee of creditors. A wholly-owned subsidiary of the company will subscribe to Electrosteel’s share capital for Rs 18.05 billion ($275.7 million) and provide additional funds ofRs35.15 billion ($536.9 million) by way of debt. The transaction will not have any material impact on the group’s earnings for the financial year ending March 31, 2019, but returns are anticipated in the following years.

Once the resolution plan is implemented, the Vedanta group company will hold around 90 per cent of the Electrosteel’s paid-upshare-capital. The remaining 10 per cent will be held by Electrosteel’s existing shareholders and the financial creditors who will receive shares in exchange for the debt owed to them. The funds received by Electrosteel as debt and equity will be used to fully settle the debts owed to the steel company’s financial creditors through the payment of Rs 53.2 billion ($812.6 million), Vedanta said in a statement.

The addition of this company to Vedanta’s kitty is one development for the group in the long list of recent setbacks. Its mining operations in Goa came to a standstill last month after a Supreme Court ruling banned mining in Goa, while its application for renewal of consent to operate its copper smelting plant, one of India’s biggest, in Thootukudi in Tamil Nadu was rejected by the state pollution regulator after daily protests by local residents. Though Vedanta claimed the protests were based on “false allegations”, it was the doubling of capacity at the smelter to 800,000 tonnes per year that raised the flag.

Such setbacks have been frequent for the group that in 2013 encountered the rejection of its bauxite mining in the Niyamgiri Hills in Odisha after 13 gram sabhas voted against the project. This vote followed a Supreme Court order in April 2013 for a referendum among the villages before mining starts.

Meanwhile, he pegs away at his 17-year-old efforts to acquire full control of Bharat Aluminium Company, in which group company Sterlite had acquired a 51 per cent stake in 2001. The government’s commitment to exit the company after some years has been mired in various political controversies.  

For a man whose business is almost perpetually in trouble, mostly related to the environment, Agarwal never displays indignation. Instead, he likes to reiterate that “Mother Earth provides for everyone”. This is certainly true for Vedanta, which derives its revenues from exploiting natural resources. But he is no stranger to setbacks. When he first went into business on his own, nothing he did would work for 10 years. “I must have shut down seven businesses before 1986. There were challenges of funding, experience and the market was not good,” Agarwal told Business Standard in 2013.

After completing his schooling from Patna’s Miller High School, Agarwal decided not to go to university and instead headed for Mumbai, leaving his father’s business and setting out on his own in the metal scrap trade. On this basis, he makes it a point to tell anyone who meets him that he is a small person from Patna who made it big in business.
 

Despite owning a global empire, Agarwal remains an old-world entrepreneur in style; hands-on, earthy and personalised, he prefers to rely on professionals to run his companies, though his brother and children have board positions on his companies.