There’s been a last-minute change in Vedanta’s script. Strong shareholder opposition coupled with somewhat gloomy global market conditions have prompted the Anil Agarwal-owned Vedanta Resources to call off its recent restructuring plan that would have simplified the metals major’s business in India and also defined its holdings in growth areas.
Speaking to ET from London, chairman Anil Agarwal explained his move. “On our roadshows we found that some of our shareholders had mixed reactions to the restructuring. Also, soon after we announced (the restructuring), there was a collapse in the (global) financial markets. So, we have decided to drop the plan and wait, as the timing is not right,” he said.
The LSE-listed resource major on September 9 announced a major restructuring plan to split its organisation into three groups: aluminium and energy, copper and zinc, and iron ore. The scheme, however, ran into stiff opposition from shareholders and investor funds, who said the move benefited promoters more and brought a relatively unknown African mining asset into the Indian shareholders’ fold.
Under the restructuring plan, Vedanta’s unit, Sterlite Industries, was to transfer its aluminium and power businesses to Madras Aluminium Company (Malco), and Vedanta was to transfer its 79.4% in the Zambian copper entity Konkola Copper Mines to Sterlite.
Also, Sterlite would have issued one equity share in exchange of one equity share in Konkola Copper Mines. In the final stage, investors in Malco would have got one Sterlite share for every 51 they held in Malco. The revamp scheme was also opposed on the grounds that it was designed to give tax and regulatory advantages rather than any strategic benefits.
Investor funds have been up in arms against the scheme which would have given promoters a greater say in the consolidated aluminium and energy businesses - two high growth areas for the company - which is now seeing a sharp fall in copper and zinc prices.
ET had reported in its September 22 edition that The Children’s Investment Fund (TCI), an activist hedge fund, was contemplating legal action against Vedanta, as it felt that the trifurcation move was skewed against minority shareholders. The Chris Hohn-owned TCI, which holds about 2.01% equity shareholding in Vedanta, is one of the 10 funds that has stakes in Vedanta.
The company has so far completed roadshows in Singapore and India, and had just commenced meeting various stakeholders in the UK. A senior company official, who spoke to ET before flying to the UK, had admitted that the number of dissenters was growing, since many investors were confused and also didn’t welcome the transfer of the Konkola Copper Mines to Sterlite Industries.
Under the scheme, small investors of the company would have got 21.44% stake in Konkola Copper Mines, post restructuring. The mines which are still being developed - Mr Agarwal said only about half of the mines were producing - have also been overrated, said analysts. A recent Citigroup report said the Konkola valuation was expensive and the dilution wasn’t justified. Konkola had last year reported a profit of $211 million, while Sterlite Industries posted a net profit of $2 billion.
Also, most of the Indian investors are relatively less aware about the copper business, compared to energy, the business which was being grouped along with aluminium. “There may be a gap in comprehension of the difference in asset characteristics in power generation and mining,” said PricewaterhouseCoppers principal consultant (mining) Dipesh Dipu. “Mining assets in a falling price scenario have impact on their valuation from the lower revenues as well as shrink in the reserve base due to higher cut-off grade.”
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