To offload $9 billion debt onto new entity valued at over $20 billion
The UK-based Vedanta Resources Plc will merge its Indian firms — Sesa Goa and Sterlite Industries — into a single entity Sesa Sterlite and also offload debt of $9 billion (Rs 45,000 crore) on it. Under the merger, three Sesa Goa shares will be issued for five Sterlite shares.
Vedanta will also transfer to the new entity its share holding of 38.8 per cent in Cairn India along with a debt of $5.9 billion. Sesa Goa will pay a nominal consideration of $1 for Cairn India acquisition. After the transfer, Sesa Sterlite will have a 58.9 per cent shareholding in Cairn India. There will not be an open offer for Cairn India shareholders as there is no change in promoters.
Two unlisted companies — Vedanta Aluminium and Madras Aluminium — will be merged with Sesa Sterlite. The entire deal is expected to be completed in five-six months after receiving shareholders, creditors and various regulatory approvals in the UK and India.
Post the all-share deal, Vedanta Resources will own a 58.3 per cent in Sesa Sterlite, while the promoter (Anil Agarwal family) will hold 63 per cent in Vedanta Resources. Vedanta Resources holds 54.6 per cent in Sterlite and 55.10 per cent in Sesa Goa.
Vedanta Resources will continue to hold 79.4 per cent shareholding in Konkola Copper Mines in Zambia. Sesa Sterlite is expected to generate a revenue of Rs 66,431 crore and EBITDA (earning before interest, tax and depreciation and amortisation) of Rs 24,953 crore. Attributable net income works out to Rs 10,971 crore. The gross debt on books will amount to Rs 66,717 crore and net debt Rs 36,936 crore. Given the average cost of funds at eight per cent, the total interest outgo is expected at Rs 4,000 crore a year.
Economies of scale
Mr Anil Agarwal, Chairman, Vedanta Resources, said the merger will result in a saving of Rs 1,000 crore a year on account of economies of scale, leverage of technical expertise, better capital allocation and cash management and tax efficiencies resulting in cost savings.
“The reorganisation will lead to creation of seventh largest global diversified natural resources major with a potential to leap forward once the synergies are tapped to the optimal,” he said.
On transfer of Vedanta Aluminium debt of $4 billion, Mr Agarwal said: “It should be viewed in totality as we are also transferring an asset worth $10 billion. Once the problem in getting bauxite from captive sources is resolved, the company will become our flagship and the cherished asset of the country.”
Mr M.S. Mehta, Group CEO, said the consolidation will create value for all shareholders and lead to a simpler and more efficient structure. It will facilitate more flexible allocation of capital.
Mr Jagannatham Tunnuguntla, Head of Research, SMC Global Securities, said that the merger appears to be in favour of Sterlite holders. On Vedanta Aluminium, he felt it could cause concern among shareholders, due to its huge debt. Vedanta Plc will be clear beneficiary as it can pass on the debt to Sesa Sterlite. Sesa Sterlite is expected to have market cap upwards of $20 billion (about Rs 1 lakh crore).