Sesa Goa shareholders to vote on Sterlite merger

The shareholders of Sesa Goa Ltd, who will gather on Tuesday to vote on the company’s proposal to create a new merged entity Sesa-Sterlite, not only have to evaluate the merits of the split verdict of two proxy advisory firms but also the extent to which the recent acquisition of bauxite mines by the parent Vedanta group could sweeten the debt-laden deal for them.

Sterlite shareowners will face a similar dilemma on 21 June when they vote in Tuticorin.

Minority shareholder activist, Institutional Investor Advisory Services, or IIAS, recommended voting “against” the proposal in its report last week citing “operational hurdles of VAL (i.e. mining rights) and the additional debt of VAL (Vedanta Aluminium Ltd) and Cairn India Ltd (total of Rs.50,000 crore) that will be transferred to the combined new entity without fully resolving issues with regard to mining”.

The proposed merger of Sesa Goa with Sterlite Industries India Ltd, Madras Aluminium Company Ltd, Sterlite Energy Ltd, Cairn India and Vedanta Aluminium—all subsidiaries of the Anil Agarwal-controlled Vedanta Resources —will create a merged entity with “a considerably higher net debt of $7.5 billion” as compared with the current $900 million (about Rs.5,504 crore) on Sesa’s book, according to a 16 June research report by Barclays Capital Inc.

The group has since added some assets through its highly-leveraged and bleeding subsidiary Vedanta Aluminium, which could weigh in favor of the transaction. The aluminium manufacturer recently acquired a stake in Raykal Aluminium Co. Pvt. Ltd, promoted by Larsen and Toubro Ltd, according to an 11 June PTI story, which will give it access to two bauxite mines—a crucial raw material it needs to turn profitable.

A Vedanta group spokesperson reiterated that the merger would create the seventh largest natural resource company in the world and “significant value for all shareholders” but didn’t respond to specific queries on the Raykal stake acquisition.

The two mines are estimated to hold about 250-280 million tonnes of the mineral and the entire bauxite excavated will be available for Raykal and VAL, the PTI story added.

Sesa Goa dropped 1.4% to close at Rs.182.50 a share on Monday on the BSE, when the benchmark Sensex dropped 1.44% to close at 16705.83 points. Sterlite Industries lost 4.34% to close at Rs.95.90 a piece.

For the last one month, Sesa Goa lost 5.49% and Sterlite Industries lost 5%.