How Anil Agarwal's $1 bn investment will help him take on Anglo American

Billionaire Anil Agarwal in July said he planned to offer around $1 billion to take London-listed Vedanta Resources Plc private, a move that has rekindled speculation his ultimate aim is a deal with miner Anglo American.

Agarwal's Volcan family trust has until July 30 to make a firm offer or walk away from the deal, which would leave Vedanta listed only in India.

Why the speculation?

In March 2017, Agarwal began amassing a stake in Anglo American through a three-year JPMorgan mandatory convertible bond named "POEMS". He announced he was buying a second tranche in September 2017.

In total, Agarwal has 19.35 per cent, making him Anglo American's largest shareholder, although only for three years unless he acts to buy the shares or seek to roll over the arrangement, which is effectively a loan.

 

Agarwal has always said the stake was an investment, based on his belief in Anglo as a company, for his family trust. He said it was unrelated to Vedanta and he was not planning a takeover.

However, he has made no secret of wanting to grow Vedanta into a major diversified player or of his commitment to South Africa, Anglo America's heartland.
 

Vedanta's international operations are copper mines in Zambia and Vedanta Zinc with operations in South Africa and Namibia.

Agarwal has said he wants to buy the Indian government's 30 per cent stake in Hindustan Zinc, of which he has majority control. Anglo has declined to comment on reports it rebuffed previous approaches for a tie-up with Hindustan Zinc.

Why the delisting and what does it change?

Vedanta was the first Indian company to list in London, in 2003. It raised around 500 million pounds ($657 million), giving it a market capitalisation just over 1 billion pounds.

Since then, the market capitalisation has roughly doubled to 2 billion pounds.

But the bigger part of the company is Indian-listed Vedanta with a market capitalisation of 803.84 billion rupees ($11.66 billion). It also has significant levels of debt and is dwarfed by Anglo, with market capitalisation around 24 billion pounds.

The London delisting simplifies Vedanta's structure, potentially making it more attractive as a company, but the loss of the listing would reduce Agarwal's deal-making capacity as potential buyers would prefer London shares to Indian ones, analysts say.
 

A spokesman for Agarwal said he was not giving interviews.

In his announcement of the planned delisting, Agarwal cited "the maturity of the Indian capital markets", saying a London listing was no longer necessary.

Mark Cutifani, CEO of Anglo American, said Agarwal has been "a very supportive shareholder".

"Our conversation is consistent with the conversation with all of our other shareholders," he said when asked about Agarwal at the company's interim results on Thursday.

What do the shareholders think?

At least one significant investor has said it is unhappy with the price Agarwal has offered to buy out other shareholders.

Anglo shareholders have benefited from Agarwal's interest, which has helped to drive up the stock, but some investors for whom ESG (Environmental, Social and Governance) issues are a concern say Vedanta's track record would be worrying.

The most significant shareholder is South Africa's state-run Public Investment Corporation, which was the biggest shareholder in Anglo American until Agarwal's purchase.

Deon Botha, PIC's head of corporate affairs, said it could not comment as "public statements to this effect will constitute market sensitive information".

Analysts and fund managers say PIC has a commitment to ESG issues that could set it at odds with Vedanta. Others say PIC's quest for a national champion based on separating out Anglo's South African assets might persuade it to work with him.

Is Vedanta's ESG record worse than others?

While most miners, including Anglo, have had issues with leaks and fatalities, Vedanta's troubles have attracted particular criticism.

In India, the Tamil Nadu government has ordered the permanent closure of a Vedanta copper smelter and disconnected its power supply in May following protests that turned violent as police opened fire on protesters, killing 13.

Vedanta is seeking to overturn the decision.

It is also fighting a London high court judgment linked to alleged pollution from copper operations in Zambia.

Implications of the new CEO?

At the end of August, Srinivasan Venkatakrishnan, known as Venkat, will take up the Vedanta helm after stepping down as CEO of AngloGold Ashanti.

Before becoming chief executive in 2013, he was AngloGold's chief financial officer, while Mark Cutifani, CEO of Anglo American since 2017, was AngloGold's CEO.

Analysts say the two have worked well together.

At the same time, the chairman of Anglo American Stuart Chambers has a strong record of securing buyers for the companies he leads.