Local investors not happy over Sterlite ADS issue

Sterlite today announced a follow-on American Depository Share (ADS) issue to raise USD 1.5 billion. The ADS would result in 17.4% equity dilution. The company will deploy the cash in its power plants, its chief Anil Agarwal said. The company stock on Thursday took a beating on the bourses after the announcement was made. CNBC-TV18's Archi Damania analyses.

Below is a verbatim transcript of her analysis that aired on CNBC-TV18. Also watch the video.

The Sterlite stock has taken a dip and the criticism is the company's local investors do not benefit from the issue. Analysts also say the offer provides an advantage to Vedanta, the parent company.

Investors were waiting for Sterlite Energy IPO, which may not happen now. Anil Agarwal, when asked, said most of the money he had was lined up for capacity expansion plans. Asarco will have to shell out USD 1.1 billion to buy out the additional minority stake in Hindustan Zinc and another USD 1.7 billion for Balco. The company also has a USD 2 billion expansion plan lined up in power that would happen over FY2011.

At the parent company level, the group is sitting with cash of about USD 5 billion but has huge capacity expansion lined up and the entire amount has been committed.

After the issue, about 17% equity dilution takes place and the promoter holding comes down to 57% from 61.7%.

Also read: Will deploy cash from ADS for power plants: Anil Agarwal