Orissa Test for Anil Agarwal

Anil Agarwal's attempt in 2008, to restructure the Indian operations of Vedanta Resources went kaput because of a little known copper asset in Africa. The entrepreneur's latest effort at merging businesses, announced over the weekend, faces an "Orissa test.'

Group company Sterlite Industries will merge into another Vedanta firm Sesa Goa to form a $14 billion conglomerate that will be the world's seventh largest diversified mining major. The new company will have presence in aluminium, iron ore, oil, zinc and copper sectors. The merger works on two major parts. First, it will de-leverage the London-listed Vedanta Resources by transferring almost $6 billion of its $9 billion debt to the new India-based entity. And secondly, the group will now be in a better position to raise money in the future, especially for a possible investment and entry into the coal sector.

But minority shareholders of Vedanta Resources and Sesa Goa, might have to look at the valuation of the loss-making Vedanta Aluminium, which runs a refinery in Orissa. The venture has been unsuccessful in getting rights to mine bauxite mines. Vedanta Aluminum, or VAL will now be part of the merged entity Sesa Sterlite. Consequently, VAL's  nearly Rs 20,000 crore liabilities will now shift from the books of Vedanta Resources to that of Sesa Sterlite.

Brokerage Nirmal Bang in a note said that VAL has been valued at about 25 per cent premium to the market value. Interestingly, Sesa Goa's market capitalisation as on Monday morning is a little over Rs 18,000 crore. And as I write, the iron ore mining company's shares continue to slide and have now dropped by over nine per cent on the Bombay Stock Exchange.In 2008, over-valuation of the African asset was the main grouse of Vedanta's minority shareholders.

VAL was Agarwal's first major attempt to build a new facility. Till then, the billionaire had shown preference to buying existing assets. From the acquisition of Madras Aluminum in 1995 to the Cairn buy in 2010, Agarwal has bought developed assets and stayed away from building projects from the ground. But Orissa's ample bauxite reserves had convinced the London-based businessman that the state was an ideal location for an integrated aluminum complex. The bauxite mining plant was planned to be built close to the rich bauxite reserves in Niyamgiri hills, making for highly cost-saving logistics.

Over the last six years, Agarwal has pumped in over Rs 40,000 crore in Orissa in two facilities in Lanjigarh and Jharsguda. But the viability of the Lanjigarh facility depended on the bauxite mines and here began Agarwal's woes.  His plans were panned  by activists from global NGOs who were able to paint a, "Avatar"ish picture of a billionaire uprooting helpless natives of Dongra tribe to make super profits. Since then, the Indian government refused to give Agarwal rights to the bauxite mines. Even his attempt to win brownie points by setting up a mammoth Vedanta University, spread over 7,000 acres, in Orissa got mired in land acquisition controversies.

Little wonder that now the shareholders of Agarwal's Indian companies will have their doubts as the "metal king" shifts the liabilities of Orissa to the new entity. Agarwal's men might also try to distance Vedanta Resources from the controversial mining project in Orissa and get some respite on the global stage. With a deadline of December to clear the transaction, Agarwal's stamina will be tested again.

The thoughts and opinions shared here are of the author.