Billionaire Agarwal creates BHP-style Indian resources major

MUMBAI – Anil Agarwal has sealed the merger of his mining and energy businesses in India, creating a BHP Billiton-like resources conglomerate, even as a recent investment in Anglo American Plc raises questions about how far the-billionaire’s ambitions stretch.

Vedanta combined with unit Cairn India on Tuesday and fixed April 27 as the record date for determining the list of the latter’s shareholders who will be allotted stock in the parent company, according to a joint statement. Vedanta will offer minority shareholders of oil producer Cairn India one equity share and four redeemable-preference shares with a face value of 10 rupees each as part of the deal agreement.

The merger gives shareholders a company with a diverse portfolio encompassing iron ore, bauxite, aluminium, power, oil and gas that has the ability to ride out commodity cycles. Agarwal, a self-made billionaire, recently surprised the mining industry by becoming the second-biggest shareholder in Anglo American through an unusual deal that led analysts to speculate he might be planning to force a break-up of or a merger with the century-old miner.

“This merger will increase the appeal of Vedanta to global investors as it simplifies the structure and increases the size and free float of the company,” Tom Albanese, chief executive officer of Vedanta, said in the statement. The firm will continue to focus on remaining a low-cost and low-debt operator, he said.

Agarwal’s fortune has been built on a series of ambitious acquisitions: In 2001, he bought control of then government-owned Bharat Aluminium in one of the first tests of India’s efforts to offload state holdings. He followed with another government entity, Hindustan Zinc, in a deal that drew the attention of the nation’s top investigating agency. He successfully bid for what was India’s largest iron ore producer Sesa Goa in 2007 and for Cairn India in 2010, despite having no oil and gas experience.

Last year, Anglo American was said to have rebuffed informal approaches from the-billionaire to discuss ideas including a combination with Hindustan Zinc

The Vedanta-Cairn combine was proposed by Agarwal in 2015, but delayed after Cairn shareholders held out for a better deal, which was offered last year.

It will allow India’s most-indebted metals company after Tata Steel to access Cairn’s cash pile, which stood at 260-billion rupees ($4-billion) at the end of December. Vedanta’s debt at the time was 650-billion rupees, while Cairn is debt-free.

“They are under pressure because of the heavy debt and the merger is planned only because of this,” said Kishor Ostwal, managing director of CNI Research, an equity research provider in Mumbai. The strong commodity cycle has benefited the group and improving raw material prices will give them a further advantage, he added.

Vedanta shares have nearly tripled in the past year, leading gains among India’s 100 largest companies. It advanced in March after unit Hindustan Zinc announced a special dividend of about $2.2-billion, of which the parent will get about $1.4-billion. The dividend payout will cover 68% of Vedanta’s debt maturities in the fiscal year ending March 2018 and alleviate near-term refinancing risk, according to Moody’s Investors Service.

“The stock looks very interesting and our bias is positive,” Ashish Chaturmohta, head of derivatives and technicals at Sanctum Wealth Management, said by phone. "The dividend mostly is going to go for debt reduction and so will the cash with Cairn," he added, saying the stock can move up further.

Shares of Vedanta climbed 2.6% to 259.25 rupees in Mumbai on Wednesday. The merged company will have a market-capitalization of about $15.6-billion and a higher free float of shares of 49.9%, according to Tuesday’s statement.

Vedanta’s 6% 2019 dollar notes rallied 42% in the past year as the company reduced its leverage and strengthened prospects for repayments with dividends.