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BL Research Bureau

The decision of Vedanta group to drop its restructuring plan resulted in a sharp jump in the stock of Sterlite Industries on Wednesday. As the aluminium and energy businesses would now remain under the ambit of Sterlite Industries, it would remain a diversified entity with aluminium, copper and zinc businesses in its portfolio. The company said that the decision was made on the back of global financial turmoil and investor feedback; it needs to be noted that the restructuring announcement was followed by a series of analyst downgrades and a sharp de-rating of the stock.

The concerns about the restructuring were threefold. One, it was seen to adversely impact the growth prospects of Sterlite Industries as its most promising businesses — those of aluminium and power were proposed to be demerged from it. The stake of Sterlite in Bharat Aluminium Company, Vedanta Aluminium Company and Sterlite Energy Ltd was to be transferred to Madras Aluminium Company, which was to be rechristened Sterlite Aluminium.

Two, valuation of unlisted group entities proposed to be merged into Sterlite and the equity dilution resulting from the deal were also seen as negatives. As a part of restructuring, Vedanta’s stake in Konkala Copper Mines was to be transferred to Sterlite; this effectively increased the stake of promoters in zinc and aluminium businesses, but brought it down in the copper business. Consequently, the restructuring plan did not go down well with the minority shareholders, who felt short-changed.

Three, apart from the complexity of the exercise, the plan was feared to result in Sterlite losing its position as a holding company for most of the group’s initiatives, which also contributed to the stock’s fall after the restructuring.

While calling off its restructuring plan, the group has clarified that Vedanta would go ahead with its capex plans of $9.8 billion at the Jharsuguda smelter, Lanjigarh alumina refinery and Korba smelter as it has adequate surplus cash on the balance sheet.

More Stories on : Stocks | Restructuring

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