Vedanta may 'delist' itself from London Stock Exchange following campaign

Published by MAC on 2018-07-02
Source: Economic Times, Bloomberg

Vedanta explores London delisting post UK protests

By Baiju Kalesh, Arijit Barman

Economic Times - https://economictimes.indiatimes.com/markets/stocks/news/vedanta-explores-london-delisting-post-uk-protests/articleshow/64821807.cms

2 July 2018

MUMBAI: Heightened political opposition in the UK and a significant drop in the share price from its 2007-08 peak have led Anil Agarwal to consider a plan to delist his flagship Vedanta Resources Plc from the London Stock Exchange, said people with knowledge of the matter. Opprobrium against the group’s mining operations has been building up over the years and recently peaked with a dozen protesters against a Vedanta project losing their lives in Tamil Nadu.

The entity is largely owned by Agarwal and his family with 28.26 per cent held by public and institutional shareholders such as Blackrock Inc, Standard Life Aberdeen, Capital Group and HSBC Holdings Plc among others.

Labour Party Opposition

Vedanta Resources in turn owns 50.1 per cent of Vedanta Ltd that houses Agarwal’s sprawling Indian zinc, copper, silver, lead, iron ore, power and aluminium mining operations through companies such as Cairn, Sesa Sterlite and Hindustan Zinc among others. Vedanta Resources also owns 79.4 per cent of Konkona Copper Mines in Zambia, Africa.

Vedanta India board member Tarun Jain and a spokesperson didn’t respond to queries.

Following the death of 13 people during violent protests against the mining giant’s Sterlite copper smelter in Tuticorin, Tamil Nadu, in May, UK’s opposition Labour Party had called for Vedanta Resources to be delisted from the London Stock Exchange. John McDonnell, the shadow chancellor, said removing Vedanta Resources from the London financial markets would prevent reputational damage from the “rogue” company, which has been operating “illegal” mining concerns for years.

“After the massacre of the protestors this week, regulators must now take action,” McDonnell had said in a statement. “Vedanta must be immediately delisted from the London Stock Exchange to remove its cloak of respectability, restore confidence in the governance of the Stock Exchange, and prevent further reputational damage to London’s financial markets from this rogue corporation.”

Sterlite was the first company set up by Agarwal in India before he launched Vedanta Resources on the London Stock Exchange in 2003, now a multinational FTSE 250 company.

Agarwal has been embroiled in controversy after shifting base to London. In 2010, the Church of England sold its holdings after saying that Vedanta had failed to respect the human rights of local people in its efforts to set up a bauxite mine in Odisha, yet another project that was shut down with expensive consequences.

Following the Tuticorin protests and deaths, hundreds of protesters mobilised by groups such as Foil Vedanta, Tamil People in the UK, Periyar Ambedkar Study Circle, South Asia Solidarity Group, Tamil Solidarity, Parai Voice of Freedom and Veera Tamilar Munnani staged protests alongside worldwide action to condemn the Tamil Nadu state government’s “collusion” in what they termed a “corporate massacre.”

Samarendra Das of Foil Vedanta also called on the UK government to investigate and delist the company. “For 15 years since Vedanta’s London listing we have been warning the British government that this criminal company is undermining democracy across India and in Zambia whilst gaining a ‘cloak of respectability’ from London,” he said. “This corporate massacre on a peaceful environmental movement must be the last straw.”

The snowballing protests eventually led to a shutdown of operations. This will have a significant financial implication on the company’s financials. Even a yearlong closure will pull down Vedanta’s revenues by a quarter and earnings by 5 per cent, according to analysts tracking the group.

Bigger Plan?

Some group watchers also see this as a step toward a larger game plan of streamlining operations before merging with Anglo American, in which Agarwal owns a strategic 20 per cent stake held through family trust Volcan as a personal investment.

The market capitalisation of Vedanta Resources was $1.76 billion at the close on Friday. Delisting will involve a payout of around $510 million to shareholders at that price. But companies typically offer a 20-30 per cent premium to entice shareholders to participate in the offer.

“The delisting plan has been ongoing for a long time and the group keeps revisiting it,” said an official aware of the billionaire’s plans on condition of anonymity as talks are still in the private domain. “But now with so much of opposition and a favourable stock price, plans of the buyback have got revived in the last few weeks.”

However, it’s not certain if the group will go ahead with the plans, he said.

Lenders' nod key

Company officials, however, said that among the conditions of the term loans taken to fund various capital expenditures across group companies is the continuation of Vedanta Resources as a listed entity and so delisting would also mean refinancing this debt or getting the consent of Indian lenders led by State Bank of India (SBI).

Similarly, Agarwal last year raised $2.4 billion through mandatory convertible bonds that can be exchanged either for cash or for Anglo American shares in 2020. JPMorgan Chase was the sole book runner and underwriter to the transaction and will be raising the resources on behalf of the Agarwal family office. It is believed the US investment bank is also involved in the delisting plans, said one of the sources mentioned above. But this could not be independently verified.

The three-year instruments were offered with annual coupon payments of about 3.75-4.2 per cent and Volcan pledged Anglo American shares that it has accumulated as security. In addition, Vedanta Resources pledged nearly one third of the promoter holding as an additional security to bond buyers.

Group insiders say Agarwal has been in talks with banks and other financial institutions to organise the funding for a buyback.

Keeping the company listed in the UK poses other challenges such as compliance costs. For example, the company has to maintain two corporate brokers-—Morgan Stanley and JP Morgan—at all times. Moreover, Agarwal remains vulnerable to activist shareholders’ wrath and investors seeking board seats.

“Marquee global investors now flock towards responsible investing,” said a Hong Kong-based FII fund manager with exposure to Vedanta. “High standards on environmental, social, governance issues are as important as financial prudence and operational excellence.”

Vedanta Resources reported a solid FY18 result, highlighted by EBITDA of $4.1 billion. “On a divisional basis, aluminium, oil and gas and power are ahead of our estimates, copper divisions are mixed and zinc India and international are both weaker,” said Dominic O Kane of JP Morgan. But the headline net debt increased to $9.6 billion, plus $1.1 billion largely due to the payment of a $1.4 billion dividend and a working capital build, he cautioned.

“Despite factoring in higher cost inflation, our more positive base metal and oil outlook, combined with Vedanta’s high levels of operational and financial leverage… the late cycle commodity mix will be increasingly attractive,” he added.

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Billionaire Agarwal continues deal spree with Vedanta buyout

Bloomberg News - http://www.mining.com/web/billionaire-agarwal-continues-deal-spree-vedanta-buyout/

2 July 2018

Billionaire Anil Agarwal added to a string of commodities deals with plans to buy out minority investors in Vedanta Resources Plc, the resources group that he’s seeking to transform into one of the world’s largest.

Agarwal’s Volcan Investments Ltd. will offer 825 pence a share for the 33.5 percent of Vedanta it doesn’t already own and plans to cancel its London listing. Vedanta surged on the news, which caps a tumultuous few months for the company that saw its shares drop last week to the lowest in a year.

Agarwal has been one of the mining sector’s most dynamic dealmakers in recent years. He became the largest shareholder in Anglo American Plc last year, triggering speculation that he might drive a wave of consolidation in the industry.

Sprawling structure

He has made a series of moves to simplify Vedanta’s sprawling corporate structure, including a merger with Cairn India Ltd. last year as he seeks to transform the group into a resources giant to challenge companies like Rio Tinto Group and BHP Billiton Ltd.

Vedanta "can be the second- or third-largest resource company in the world," Agarwal said in an interview earlier this year.

Vedanta rose as much as 28 percent in London and traded at 819.4 pence a share at 12:02 p.m. The stock had dropped 20 percent this year through Friday as it faced protests and environmental concerns at some Indian operations.

The London-listed company owns about 80 percent of Zambia’s Konkola Copper Mines and just over 50 percent of Indian-listed Vedanta Ltd., which in turn controls a series of units and subsidiaries with assets stretching from aluminum and iron ore to oil and power, according to a company presentation.

The deal is "a natural progression of our journey to simplify the Vedanta Group’s corporate structure,” Agarwal said in the statement. A London listing was no longer necessary for the company thanks to "the maturity of the Indian capital markets," he said.

Tough times

It’s been a tough year so far for Vedanta investors.

The company’s shares plunged in May as it was forced to shut a copper smelter in southern India following deadly protests. Earlier a court ordered a halt to iron ore mining in Goa on environmental concerns.

The offer, which Volcan will table formally by the end of July, is a 28 percent premium to Friday’s closing price. But Vedanta’s shares were trading above 850 pence before the drop in May, and have trailed other major mining companies.

“It’s not full value,” said Tim Huff, director of equity research at Canaccord Genuity Ltd. “But it’s a relatively good outcome.”

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Anil Agarwal faces shareholder resistance to $1 billion Vedanta bid

By Ben Martin

Reuters

3 July 2018

LONDON – Billionaire Anil Agarwal faces investor resistance to his $1 billion bid to buy out minority shareholders in Vedanta Resources and take the London-listed Indian miner private.

Vedanta, chaired by its 64-year-old founder Agarwal, on Monday announced that its independent board directors were prepared to back an 825 pence-a-share bid from Agarwal's family trust, Volcan, to acquire the 33.5 percent of the company that it does not already own and delist the group.
"We think that this offer is very opportunistic and massively undervalues Vedantar"

Under the proposal, Volcan would spend 778 million pounds ($1 billion) buying out minority investors in a deal which would value Vedanta as a whole at about 2.35 billion pounds.

But a large minority shareholder in the mining group told Reuters the bid was too low and that his investment firm will raise concerns about the deal with Vedanta's independent directors.

"We think that this offer is very opportunistic and massively undervalues Vedanta," said the shareholder, who declined to be identified.

"It's the worst possible time for minority shareholders to be taken private," he said, adding that he believed Vedanta was worth between 11 pounds and 12 pounds-a-share.

It follows a warning from Barclays analysts on Monday that the bid by Indian industrialist Agarwal was "opportunistic" and may encounter "some resistance from minority shareholders."

Agarwal, who started out as a scrap metal trader, has expanded Vedanta into a natural resources group with operations spanning oil and gas, metals, including iron ore mining and aluminium smelting, and power generation.

It was listed in London 15 years ago and owns just over 50 percent of India-listed Vedanta Ltd, which has a market value of about $12.5 billion, and a controlling stake in Zambia's Konkola Copper Mines (KCM).

Taking the London-listed company private would help to simplify the complicated corporate structure behind Agarwal's business interests.

Volcan's bid comes after Vedanta shares, which rose above 11 pounds in February last year, fell to their lowest level in a year last week, closing at 632.4 pence on June 25 in London, according to Thomson Reuters data.

The stock has slumped following a deadly incident in India in May, when police fired on protesters seeking the shutdown of a Vedanta-owned copper smelter, killing 13.

The large minority shareholder told Reuters that Volcan's bid did not reflect Vedanta's prospects and potentially positive catalysts for the share price.

These include the arrival of a new chief executive, Srinivasan Venkatakrishnan, in August and the KCM business starting to turn cash flow positive, the investor said.

A spokesman who acts for both Vedanta and Volcan declined to comment.

Vedanta shares were above the level of Volcan's bid on Tuesday, closing up 1.3 percent at 828.4 pence.

As well as 825 pence-a-share in cash from Volcan, minority investors will also be entitled to receive the dollar-denominated dividend the miner is due to pay next month, which will take the total consideration to 856 pence-a-share at exchange rates on Friday, which was the last trading day before Volcan's bid was announced.

Volcan has until July 30 to make a firm offer and expects to include a 90 percent acceptance condition, which it could waive at its discretion.