Merger with Cairn India a plus for Vedanta: Morningstar

Below is the edited transcript of Piyush Jain’s interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.

Reema: What have you made of the Vendanta response to this press speculation and the implications?

A: It is reactions in terms of how early basically the separation is. But, that will be an obvious conclusion after sometime because if you look at Vendanta, they have a pile of debt and on the other hand, they have loads of cash in subsidiaries, in the Hindustan Zinc or Cairn India. So for them to actually correct their over-leveraged balance sheet, and in a proper way tap the cash positioned in the subsidiaries, the merger or the reverse takeover as they call, that would be an obvious thing. It is just a matter of how they are able to get through the board and the shareholders.

Mangalam: But do you think the reverse takeover of HZL will be easy considering that Hindustan Zinc has government nominees on the board as well.

A: It will not be easy. Even for Cairn, for one, for Hindustan Zinc it will not be easy. And second, for Cairn also, it would be really very interesting to see what kind of minority shareholders, they get in return because Cairn as you know, because of tax and also concern on the cash has been trading at discounts. So, it will not that easy.

Mangalam: And with the kind of cash that HZL has on its books, do you think that it will be a negative for them considering if there is a reverse merger that takes in as related to the stock price?

A: For Cairn it would be a bit of a dampener. If any sort of merger or swap ratio if it happens, and any sort of swap ratio which is not interest of minority shareholders, but for Vendanta, it will be a net plus because what it will do is that it will give them a direct access to all the cash generating subsidiaries and as you know, Hindustan Zinc and Cairn, they are like positive free cash flow generators. And for a company like Vendanta it will get an access to a diversified pool of commodity business and then you have a robust cash generation which will help overall in terms of the credit matrix and that is what is the most concerning part over the last few quarters for Vendanta.

Reema: So, basically what you are saying is that all these three transactions are obvious transactions for Vendanta, you expect them to happen but it is not going to be particularly easy?

A: Yes, the timeframe could be really a bit of a doubt. But of the company, it is an obvious thing and will be positive for the company and that is why maybe now or few quarters later, they would really think about it.