Vedanta to Indian government: $3.4 billion for Bharat Aluminium and Hindustan Zinc

London-based Indian metals and mining company Vedanta Group has offered INR170 billion ($3.4 billion) to buy the Indian government's remaining stakes in Hindustan Zinc and Bharat Aluminium, according to Vishwapati Trivedi, secretary at the Ministry of Mines.

Purchasing the stakes will give Vedanta's Mumbai-based unit Sterlite Industries control over a combined 964,000 metric tons of annual zinc and lead-producing capacity, and full ownership of a 2 million ton-a-year bauxite mine.

Vedanta has offered INR150 billion for one company and INR20 billion for the other, Trivedi said, without identifying which amount related to which company. Vedanta chief Anil Agarwal has previously said the transaction may be completed this year.

Sterlite, the nation's biggest copper producer, currently owns 64.9% of Hindustan Zinc, which has cash and cash equivalents of $3.35 billion according to industry data, and 51% of Bharat Aluminium, which owns the bauxite mine.

Lack of full control at Hindustan Zinc has undermined decision-making at Vedanta, according to analysts: for example, in 2010, Vedanta's plan to buy Anglo American's Skorpion zinc mine in Namibia through Hindustan Zinc failed after the Indian government did not ratify the deal. Instead, Vedanta completed the purchase through Sterlite.

In broader terms, this purchase fits in neatly to Agarwal's overall strategy of combining the group's publicly traded Indian units into a new company (Sesa Sterlite) after an $8.67 billion purchase of oil producer Cairn India. Sesa Goa, India's largest iron-ore exporter, will absorb Sterlite in an all-share deal. Vedanta Aluminium, and Madras Aluminium, will also be merged into the new Sesa Sterlite.

Vedanta plans to transfer debt of $5.9 billion to Sesa Sterlite, reducing outstanding loans by 61%, to $3.8 billion, and cutting debt-service costs by $300 million for the year ending March 31, 2013, according to the firm.

For its part, the sale by the Indian government of its stake in the companies is part of a wider strategy of seeking to narrow its fiscal deficit through steps including asset sales and capping of expenses.

In this respect, India's budget deficit is predicted by analysts to widen to 5.9% of gross domestic product in the year ending March, compared with a target of 4.6%, and Finance Minister, Pranab Mukherjee, has said that he aims to cut the shortfall to 5.1% in the next fiscal year.