26 JUNE 2012Indianexpress
Sesa, Sterlite merger creates 7th largest natural resources company
Edited by : AL CIRCLE
2 min read
London Stock Exchange-listed Vedanta Resources moved a step ahead to merge its Indian subsidiaries to create a diversified mining and metals group. On Monday, iron ore miner Sesa Goa and copper-to-aluminium maker Sterlite shareholders approved creating the $14.5-billion Sesa Sterlite, the seventh-largest natural resources company by operating profit.
Sesa Goa said 91.70 per cent of its shareholders, representing 79.12 per cent of votes, approved the merger of Sterlite, Madras Aluminum and Vedanta Aluminum with itself, despite opposition from FII Franklin Templeton which owns 12.5 per cent. 92 per cent of Sterlite shareholders, too, voted for the merger with Sesa Goa. Vedanta now needs approval from the Foreign Investment Promotion Board.
Sesa Sterlite will own iron ore, oil & gas, aluminium, power, zinc and copper — insulating it from the cyclical nature of commodities and global volatility, besides saving Rs 1,000 crore a year through synergies.
Vedanta chairman Anil Agarwal had said on February 25, “Sesa Sterlite will be the principal operating company and with its high quality assets, growth projects and strong management, it will be well placed to create value for all shareholders.”
Sesa Goa rose 0.78 per cent to Rs 187.35 on the BSE while Sterlite fell 0.50 per cent to Rs 99.15. The market value of the merged entity at Rs 49,513 crore has overtaken rival Hindalco’s Rs 21, 968 crore at Mondays’ price.
Vedanta expects the combined entity to earn more than $10 billion revenues a year, while operating profit is expected to above $5 billion.
Sesa Sterlite will own 58.9 per cent in Cairn India and full control in VAL and MALCO but with rise in debt. The company’s consolidated gross debt will be $13.5 billion with an average interest cost of 8 per cent. Vedanta’s debt will fall 61 per cent to $3.8 billion.
“The consolidated entity would have to refinance its debt transferred from Vedanta as its cash flow will be lower than the debt servicing required over the next two years,” said Tarang Bhanushali of IIFL in a research note on February 28.
Sesa Goa said 91.70 per cent of its shareholders, representing 79.12 per cent of votes, approved the merger of Sterlite, Madras Aluminum and Vedanta Aluminum with itself, despite opposition from FII Franklin Templeton which owns 12.5 per cent. 92 per cent of Sterlite shareholders, too, voted for the merger with Sesa Goa. Vedanta now needs approval from the Foreign Investment Promotion Board.
Sesa Sterlite will own iron ore, oil & gas, aluminium, power, zinc and copper — insulating it from the cyclical nature of commodities and global volatility, besides saving Rs 1,000 crore a year through synergies.
Vedanta chairman Anil Agarwal had said on February 25, “Sesa Sterlite will be the principal operating company and with its high quality assets, growth projects and strong management, it will be well placed to create value for all shareholders.”
Sesa Goa rose 0.78 per cent to Rs 187.35 on the BSE while Sterlite fell 0.50 per cent to Rs 99.15. The market value of the merged entity at Rs 49,513 crore has overtaken rival Hindalco’s Rs 21, 968 crore at Mondays’ price.
Vedanta expects the combined entity to earn more than $10 billion revenues a year, while operating profit is expected to above $5 billion.
Sesa Sterlite will own 58.9 per cent in Cairn India and full control in VAL and MALCO but with rise in debt. The company’s consolidated gross debt will be $13.5 billion with an average interest cost of 8 per cent. Vedanta’s debt will fall 61 per cent to $3.8 billion.
“The consolidated entity would have to refinance its debt transferred from Vedanta as its cash flow will be lower than the debt servicing required over the next two years,” said Tarang Bhanushali of IIFL in a research note on February 28.
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