Billionaire Anil Agarwal’s plan to buy India’s stakes in units of his Vedanta Group may falter as the government insists on parliament’s approval for the deal, according to three people familiar with the decision.
The law ministry ruled that lawmakers have to agree to the sale, a process that could stretch indefinitely, said the people, who asked not to be identified, citing confidentiality terms. Vedanta, which raised its offer for the government’s 29.5 percent stake in Hindustan Zinc Ltd. and 49 percent in Bharat Aluminium Co. by 20 percent to $3.93 billion in August, was betting on a cabinet decision, a swifter method, they said.
The stakes would give Vedanta complete access to almost $3.5 billion of cash, besides lead, zinc and bauxite mines. Agarwal, who expected to conclude the deal last year, needs the funds to expand mining operations at India’s biggest zinc producer, develop group company Sesa Goa Ltd.’s iron ore project in Liberia and purchase coal mines to fuel his power plants and turn around the aluminum business.
“The ability and liberty to better deploy Hindustan Zinc’s cash will be a big positive for valuations,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “Government involvement has brought in operational inefficiency and deprived Vedanta of growth freedom.”
Senjam Raj Sekhar, spokesman at parent Vedanta Resources Plc, didn’t answer a call to his mobile or reply to an e-mail.
Vedanta unit Sterlite Industries India Ltd., India’s biggest copper producer, owns 64.9 percent of Hindustan Zinc and 51 percent of Bharat Aluminium. Sterlite fell 2 percent to 113.60 rupees at the close in Mumbai. Hindustan Zinc declined 1.6 percent to 129.85 rupees, while Sesa Goa dropped 1.3 percent to 187.15 rupees. The key Sensitive Index rose 0.4 percent.
Delaying the sale would also impede the government’s plan to raise 300 billion rupees ($5.5 billion) through asset dilution and cut the budget deficit. Still, retaining the stake fetches regular dividend payments, one of the persons said.
Parliamentary approvals can take as long as a decade because the sessions are often disrupted by opposition protests. The Coal Mines Nationalisation Amendment Bill, an attempt to open up the nation’s coal mining sector, has been awaiting parliamentary approval since 2001. Parliament sessions are held three times a year, while the cabinet usually meets once a week.
Companies such as Hindustan Zinc and Bharat Aluminium, which were formed through an act of parliament, can be privatized only by approval from lawmakers, said the people, citing a Supreme Court judgment that rejected a government plan to privatize oil refiners Hindustan Petroleum Corp. and Bharat Petroleum Corp. in 2003.
Agarwal plans to combine his companies, except Konkola Copper Mines Plc in Zambia, into a single entity, to reorganize debt and increase operational synergies. The plan is part of a strategy to build a resources group, straddling oil, iron ore, copper, aluminum, lead and zinc.
Should he succeed in buying the government’s stake, Hindustan Zinc and oil explorer Cairn India Ltd. may contribute about 65 percent of the earnings before interest, taxes, depreciation, and amortization of the combined company Sesa-Sterlite, B&K Securities analysts Pritam Lala and Parin Tanna wrote in a Nov. 30 note.
Hindustan Zinc, based in the western city of Udaipur in Rajasthan state, produces more than 1 million metric tons of zinc and lead a year. New Delhi-based Bharat Aluminum owns bauxite mines in the central state of Chhattisgarh that produce about 2 million tons a year. The two companies also produce a combined 1.3 gigawatts of electricity.
Hindustan Zinc reported its biggest profit in at least seven years in the year ended March 31 after revenue from zinc and lead gained 7.5 percent and sales of silver, a by-product of zinc and lead, more than doubled. The company increased refined silver output by 35 percent in the last fiscal year, according to its website. Price of the precious metal gained 48 percent in the period from a year earlier, according to data compiled by Bloomberg.
Full-year profit at Hindustan Zinc, set to report third-quarter earnings today, will increase 12 percent, according to the median of 44 analyst estimates compiled by Bloomberg. The company’s zinc and lead mines in Rajasthan will start commercial production in parent Vedanta Resources said in an Oct. 9 statement.
Vedanta, traditionally a mining company, last year purchased the Indian unit of Cairn Energy Plc for $8.67 billion in a deal that provides access to the nation’s biggest onshore oilfield. The group suffered a setback as unit Vedanta Aluminium Ltd. shut its alumina refinery in Odisha state on Dec. 4 after failing to secure bauxite supplies, Chief Operating Officer Mukesh Kumar said that day. The company deferred expansion of its smelting capacity to 2.6 million tons, pending approval to mine bauxite in the eastern state.
The government in August 2010 rejected Vedanta’s plan to source bauxite from the nearby Niyamgiri hills because of concern it would affect the tribes and wildlife in the area.