In 2008 when Anil Agarwal tried to restructure his Indian operations by creating business verticals, his investors reacted adversely to the circuitous route. That forced a rollback within a fortnight. This time around, the Vedanta Resources Chairman is confident that it’s a win-win for all, creating global scale and value. In an interview with Shubhashish, Malini Bhupta and Arijit Barman, he speaks about why he believes natural resources should be auctioned and how his next bet on coal will play out. Edited excerpts:
This restructuring exercise is seen as pitting Vedanta or now Sesa Sterlite directly against global resource majors, such as BHP Billiton and Vale. Is that a deliberate attempt?
BHP Billiton has come out of Australia; Vale came out of Brazil and Anglo American of South Africa. It was absolutely imperative that an Indian natural resources player should be seen as emerging. We need not one, but at least five such Indian companies. So, we have taken the first step where we can say to the world we are an Indian natural resource player going global.
But, what about creating value?
That’s the whole idea. A metals pure play has very less value. Vale has always suffered because of that. So they have now added coal, copper, etc, to have a mixed basket and diversify. As an Indian company, we have really large capacities but internationally we are still small. We have only created a foundation for taking off. We still don’t want to lose our identity of being Indian.
What will be your revenue mix? Will it be more from India or will your global aspirations make you focus more on markets outside?
I think 60-70 per cent will still be India-driven. And, going forward, it can grow more.
But, where will the next phase of growth come from? The capex has already been spent.
We have to still enhance our capacities. Coal is one area we are looking at very seriously. But apart from that, in the oil and gas sector there is tremendous potential to grow, both here as well as abroad. The same for iron ore: the growth potential is in India and abroad. We have already spent $6 billion on expansion plans. We will continue to be the lowest cost producer in metals. That is our focus. We are not looking at acquiring companies at the moment, except if the government auctions coal blocks, we will look at it.
Are you looking at downstream business, too? Like an oil refinery or in aluminium or even a steel plant?
I think we are very comfortable to stay focused on oil exploration and aim to raise capacities in the crude oil business. On the iron ore side, I have always said we don’t understand the steel business. But, it is important to be a part of the steel business. So, if somebody is putting up a big steel plant, we would like to take equity part in that. It will be a win-win situation for both of us. We can supply the iron ore and also be equity partners.
But, why will anybody partner you? Big players would want to do it alone and smaller players will feel threatened.
Look at BHP Billiton, they take equity in steel mills. Rio Tinto and Vale also pick up equity stakes in steel companies. It’s a strategy. I don’t think it’s a threat to any of the partners.
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Sesa Goa went ahead and bought Bellary Steel. It is now in litigation with JSW Steel but what was the rationale behind that move?
We thought something was available and it was in Karnataka, where Sesa Goa has its iron ore mines. There are so many foreign companies from Brazil, Korea, etc looking to enter India to build steel plants. So we want to be ready as we can offer them this land and iron ore from our mines.
Where do your discussions with the government for the residual stake sale in Balco and Hindustan Zinc stand today?
We are very comfortable having the government as a partner. But, they want to sell and asked us for our offer. So we have given them our offer. We are still having discussions.
What was your offer to the government this time around?
We have given them the formula that was part of the deal when we bought the two firms.
But that seems to be the bone of contention, the government’s argument being the formula is not relevant today as the fair market value of the companies is very different now.
I think they also want to sell it. But, we are also not pushing it very hard because it requires large sums of money.
So, how important is Balco in your scheme of things today, given that you have significant capacities lined up in aluminium outside the company?
It is not important.
So, would you consider divesting your stake in Balco?
Who will buy our stake? We have 3 mt capacity and the vision is to create the largest aluminium capacity with the lowest cost. We are not in the business of selling and buying companies. Balco and Vedanta Aluminium together with Sterlite create huge synergy. In every business, there are partners. So here, the government is the partner. If a partner decides to remain in the business, you can’t force it out.
But, what about growth?
We have been able to raise equity on the same basis. There is definitely pressure as they (government) don’t align with our equity, but it doesn’t matter. If you look at HZL alone, it’s a $13-14 billion company. It was just $1 billion earlier and has come all the way to this. The government has never got this kind of upside.
Everybody thought, Sesa Goa would merge into Sterlite, as Sterlite is the bigger company. But you did the opposite. Why?
We appointed the best of lawyers, chartered accountants, etc. They did a good job and came out with this scheme which is a win-win. My only instruction was — keep the last shareholder of the company in mind.
In Sesa Sterlite, coal is the only missing link. So, will you look globally or focus on India?
Large coal mines in countries such as Columbia, Peru, etc make sense as the valuations are lower. Australia has become very expensive. My preference is India. When the government auctions the coal blocks, we will look at it. What is happening is that currently 95 per cent of the coal is coming from just one company, Coal India. There have to be more companies supplying coal. As and when the coal block auctions happen, we will certainly look at it.
You think the roadblocks for you in the oil and gas sector are over?
The Prime Minister personally told me that we need 10 more players. If you have an open and transparent policy, then foreign companies would love to come to India. I think the entire resources sector should be based on the auction model, or revenue model. In this business, we need more companies, we need big players to come in and put in big money.
But, you are a rank outsider in this oil and gas business and there is already one big established player in the private sector. Going by the issues that the telecom industry has seen, like crony capitalism, do you expect to face similar obstructions or resistance?
We have found no hindrance in our operations. The system works; the government works. We are present in many states and we are very friendly with them. But for something very different like licences, etc, it’s a very different thing as one has to take various approvals.
Cairn India earlier was forced to restrict its operations within India. How do you now make it a global oil exploration company?
We have unshackled Cairn. Earlier they were restricted. Now we want to them to go wherever there is an opportunity. They have already gone to Sri Lanka. Going forward, whereever there is an opportunity of growth in Africa, Asia or Latin America, Cairn will pursue it.
Like Reliance, are you open to roping in a bigger oil company to partner Cairn?
I don’t know. But for growth, if it is necessary then we will do it.
There is no clarity on the management of Sesa Sterlite. How would the board structure be in the new company?
In principle, we would like to have more of non-executive directors on the board. At the moment we have well-run Sesa Goa and Sterlite Industries. Probably, we could have a couple of managing directors for Sesa Sterlite. Each sector can drive its own business with its own management. It’s still work in progress. But, I can answer that we will have more non-executive directors and more independent directors than the corporate governance norms.
Lastly, you have always believed in the India story. But keeping in mind the troubles you faced in Cairn, or you still face in Orissa, don’t you feel India has judged you very harshly?
It’s a state of mind. There is no point getting emotional about it. One needs to be patient about these things. And I have learnt this over many years. Why get upset? People will realise the value we want to create in India.
