London Calling! June 4 2004

London Calling! June 4 2004

Friends in low places

India's most threatening mining company, London-based Vedanta, is currently its most threatened. It's just seen its share price sink even lower than it did following last month's general elections, when it fell from 390 per share at its launch last December to only 270.

Although the new central Indian government is no enemy to multinational mining companies, as predicted in London Calling posted on MAC last month, financial analysts don't expect it to move swiftly to privatise remaining state owned enterprises.

A good deal of Vedanta's prospects for the medium-term were vested in a takeover of Hindustan Alumininum, Hindustan Copper, and possibly the remainder of Balco which it doesn't already own. So long as the first two at least are reckoned by the goverrnent as profitable, they may remain out of corporate clutches.

Meanwhile, Vedanta has just announced another rights issue which, although ostensibly aimed at increasing investment in Sterlite, its Indian mining vehicle, looks like falling far short of intentions, especially as the new shares are over-priced. The likely result is that Vedanta will end up buying most of the Sterlite offering, increasing its hold over its Indian subsidiary to more than three quarters of the total.

Revolving doors

It's not all bad news for the Agarwal-Gilbertson clique which runs Vedanta out of offices in east London. Not only did they last month recruit a key pro-Congress party civil servant, Naresh Chandra as a non-executive director to dust up their shaky image of corporate governance.

They've also seen a former director become India's new finance minister As John Meyer at Numis Securities comments: Vedanta may now have "friends in high places" (though adding of course, that the minister would have to "tread carefully to avoid any charges of favoritism").

Moreover, while the state of Andhra Pradesh saw its free market, free booting chief minister, Chandrababu Naidu and his party exit from the polls in disgrace, Orissa's ruling government is once more back in power. This is the state where Vedanta/Sterlite has targeted its next big moves on tribal territory, specifically with a new mine and refinery, slated at $800 million, at Lanjigarh.

The defeated opposition party had previously promised to investigate the award of all leases by the previous administration. Protests against Vedanta/Sterlite continued during electioneering with marches to the headquarters of the state governor, demanding the leases be rescinded.

In early April Vedanta took a group of analysts from global investment banks on a tour of Orissa, telling them - according to one inside source - that Sterlite hoped to win a further mining licence.

By the time the company holds its first annual shareholders meeting, on July 29th in London, there will certainly be more protests in Orissa and no doubt further afield.

[Sources: Vedanta falls, friends in high places: Dow Newswire 1/6/2004; new rights issue, Business Telegraph 2/6/2004; state of play in Orissa: FT 23/5/2004]