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Sterlite offers $1.5 bn follow-on ADS issue

Published on Thu, Jul 16, 2009 at 09:20 | Source : CNBC-TV18

Updated at Thu, Jul 16, 2009 at 13:59

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Sterlite Industries has offered a follow on American Depository Share issue worth USD 1.5 billion. As per the US Securities and Exchange Commission filing, the ADS will result in a 17.4% equity dilution. The issue has been priced at USD 12.15 per ADS or Rs 591.90 per share.

Commenting on the ADS issue, Anil Agarwal, Chairman, Vedanta Group, said, "Our parent, Vedanta, intends to purchase ADSs in this offering either directly or through a subsidiary. Purchases will be made on the same terms and conditions as offered to the public and may account for USD 500 million of ADSs offered hereby."

Here is a verbatim transcript of Archi Damania and Varinder Bansal's comments on CNBC-TV18. Also see the accompanying video.

The dilution will be about 17.4%. In this money that Sterlite is going to raise, Vedanta is going to invest about USD 500 million. Vedanta has cash of about USD 5 billion. Sterlite holds USD 1.8 billion, but most of it is committed towards its expansion plans.

On Sterlite's expansion and acquisition plans:

There is a likely outflow of USD 1.1 billion towards Asarco acquisition. There is also the acquisition of minority stake in Balco which will lead to an outflow of about USD 450 million. The investment by FY11 in the power business that is Sterlite Energy would be about USD 1.9 billion. So, it has expansion plans lined up of about USD 3 billion. Out of which USD 1.8 billion is already in cash that Sterlite holds. This additional USD 1.5 billion that it is going to raise will make its position comfortable for the acquisition and for the expansion plans that it has lined up.

Commenting on the company's expansion and funding plans, and also his investments in the power business, Agarwal said, "We have sitting with USD 6 billion of cash. Close to USD 3 billion is sitting with Hindustan Zinc. We are looking at acquiring new assets. We are also looking to new projects to increase capacity. We need some money for Asarco. We are looking to develop something on our own. That is the right thing to do at this point, develop a vehicle to cater to our customer demand."

Agarwal is bullish on power. He said, "After NTPC, we are producing 2000 MW. We are going to deliver by next year 6000 MW which people are not aware of."

On market feedback to the ADS issue:

Markets are giving thumbs up to the ADS issue and the important thing is that it is a bit surprising to the market because people were expecting either a pre-IPO placement of Sterlite Energy or the QIP route taken by Sterlite Industries. These were some of the issues which were being talked about in the market. Even though it has come as a surprise, it is a preferable route because of the appetite that one sees for the mining and metal companies in the US. Most people expect this USD 1.5 billion to be easily absorbed by FIIs in the US. That is one important reason why they have gone for an ADS compared to the QIP route which was the most talked about.

USD 1.5 billion is important because they need money for Asarco, Hindustan Zinc, and Balco. This will help the company to do that. For Asarco, the deadline is August 10. If Sterlite is unable to make it over and acquire this company, there would be minimum hit of USD 100 million which could come to this company. So, the intention of raising USD 1.5 billion shows that the company is very serious and that the Asarco acquisition will go through.

We also learn from our sources that the final pricing will be done before the market opening. That will be important because the pricing which has come is the maximum price at which they will not be selling. They have been quoting a minimum price. But the final price will come after the market opens and that will have repercussions on the way the stock price behaves in the market today. Most analysts are also skeptical about equity dilution which is about 15-17%, but they are not complaining at the moment. They are waiting for the final pricing to come in to give their target price and recommendations going ahead.