Financial turmoil, shareholder opposition force move.
Barely two weeks after announcing what it called a mega-restructuring plan, London-listed Vedanta Resources, India's largest diversified mining group, has scrapped the proposal.
The company cited the global financial turmoil and shareholders’ objections as reasons for the sudden change of plan. On September 9, Vedanta had said it wanted to reorganise businesses under three major subsidiaries, creating a group for copper and zinc, another for aluminum and energy (mainly power) and the third for iron ore. But the proposal was questioned by shareholders and fund managers.
However, Vedanta Chairman Anil Agarwal told Business Standard that the company remains committed to "simplifying and streamlining the corporate structure", but did not want to give a time frame because of the volatility in the markets.
“After our roadshows on restructuring, we received mixed reactions from the shareholders; some noticed that there were negative sentiments against the reorganising plans, especially in the turbulent market conditions. However, we will go ahead with our $25 billion investment plans because we are comfortably positioned with a $6.5 billion reserve,” said Agarwal.
Rakesh Arora of Macquarie Research said that the swap ratio fixed for the merger and demerger of businesses was not favourable for investors. “The merger of Konkola Copper Mines in Zambia with Sterlite Industries, the flagship company of Vedanta group, was costlier for shareholders. Moreover, the group’s plan to transfer the promising power business from Sterlite to Vedanta Aluminium would have diminished the value of Sterlite shares,” said Arora.
Three days after announcing the restructuring plan, Moody's Investors Service had threatened to lower its rating on $1.9 billion of Vedanta debt and Standard & Poor's cut its credit outlook for the company. The Children’s Investment Fund (TCI), an activist hedge fund, was planning to take legal action against Vedanta for its restructuring proposal on the grounds that it was against the interests of minority shareholders.
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Arora felt that Vedanta’s move to scrap the restructuring plan was positive given that the investor confidence had been shaken.
“The investors are not against restructuring. In future, the company should ensure transparency in the process. Indian investors, or those investing in the country, are looking to take an exposure to the growth story in emerging businesses such as aluminium and power. Thus, Sterlite Industries should be the umbrella for these businesses,” he suggested.
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Responding to Vedanta’s decision, the Sterlite Industries stock shot up 8.36 per cent on the Bombay Stock Exchange (BSE). The shares closed at Rs 487.55 in a flat Mumbai market. However, the shares of Vedanta fell about 6 per cent on London Stock Exchange (LSE) at 1.36 p.m. after the announcement as hopes of getting emerging businesses separately outside Sterlite Industries vanished, at least for the time being.
Vedanta was advised by JPMorgan Cazenove and Morgan Stanley on its restructuring and by PricewaterhouseCoopers on Indian tax and regulatory issues.