Govt, Sterlite head for legal row over Balco sale

Govt, Sterlite head for legal row over Balco sale

Akshaya Mukul & Sidhartha Times News Network

5th June 2006

NEW DELHI: Balco disinvestment is headed for the courts for a second time, but unlike 2001, government is going to argue against sale of its stake to Sterlite Industries.

The core group on disinvestment (CGD) headed by cabinet secretary BK Chaturvedi on Monday decided to play it safe and go with attorney general Milon Banerjee's opinion that the government's remaining 44% stake had been undervalued at Rs 842 crore.

The valuation has been questioned by the AG on the grounds that SBI Caps, which had been appointed by the government as the advisor for the sale, used 2004 data and there is an opinion that the market situation had changed dramatically since then given the steep rise in commodity prices.

The role of the advisors to the sale was also under scrutiny. SBI Caps had outsourced the valuation exercise to Dalal Mott McDonald, which had advised Sterlite on expansion of Balco's Korba plant.

In his opinion, Banerjee had pointed out that there was "conflict of interest" involved since Dalal Mott McDonald had advised both SBI Caps and Sterlite.

With ministry of mines gearing up for litigation, a senior official said, "Our case rests on solid ground. Conflict of interest can be easily proved in a court of law.

It is for the finance ministry to take action against SBI Caps." Officials said government could not have gone against the AG's opinion, especially after the law ministry, which had been consulted on the issue, too concurred with it.

When contacted, Sterlite director Tarun Jain did not comment on the company's future course of action saying he had not heard from the government.

In 2001, Sterlite had acquired 51% stake for a consideration of Rs 551 crore and under the shareholders agreement it is entitled to purchase additional 44%, while 5% is to be reserved for Balco employees.

Sterlite Industries - which had delivered a payment of Rs 1,098 crore to the Centre, which included Rs 256 crore interest, since the sale was to be completed in 2004 itself - had served a notice last month, threatening to go to court if the sale was not completed by June 9.

Sterlite has charged government with breach of contract since it has not followed the conditions laid down in the shareholders agreement.

As per the shareholders agreement, Sterlite could exercise its option to acquire the remaining stake. Sterlite had put in its bid in early 2004 itself on expiry of the lock-in period but the government dragged its feet, first citing the general elections and then sought two extensions on grounds that valuation was going on.

The mines ministry has also questioned the need to sell the residual stake. Sterlite has questioned the competence of the agencies involved in the sale to raise eyebrows over the valuation.