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Vedanta delisting: Anil Agarwal's latest move raises a few questions

On May 12, Vedanta said it plans to de-list from Indian stock exchanges

May 13, 2020 / 03:20 PM IST

These are unusual days for Anil Agarwal, the billionaire founder of Vedanta. For someone who had made his mark through a flurry of acquisitions, and turning around sick assets, the entrepreneur has been uncharacteristically silent.

Instead, Agarwal seems to be consolidating his assets.

In 2018, he delisted Vedanta Resources from London Stock Exchange. A year later, he divested the 20 percent stake held through family trust Volcan Investments in South African mining major Anglo American. And now, in an announcement on May 12, he proposed to delist Vedanta from the Indian stock exchanges.

Is the move just about 'corporate simplification' as Agarwal's firm said in the statement?

Moneycontrol spoke to industry executives and experts to understand the veteran entrepreneur's move. Not surprisingly, there were more questions than answers.

Here are a few:

Is Agarwal still betting on the mining sector?

It's a fair question to ask, especially given the roadblocks the entrepreneur and his firms have hit in the past few years.

To be sure, Agarwal was among the first, and perhaps remains the only Indian businessman who understood the true potential in mining, and his ambition to create a natural resources major out of India, was not misplaced.

Starting as a scrap trader, Agarwal built an empire buying out public sector units and turning them around, saw off intense competition in his acquisition of Sesa Goa - the largest private iron ore miner in the country - and diversified in his buy of Cairn, a deal considered a masterstroke.

But the setbacks were equal in measure. The multi-billion alumina project in Odisha attracted a lot of bad press in India and overseas and has been a loss-making proposition. Sesa Goa has been hit since the mining ban, and run-ins with the administration over environmental regulations continue with the copper smelter in Thoothukudi.

It was difficult being Anil Agarwal.

The stake buy in Anglo American was expected to be his big push in getting to the mining-major dream. And even though Agarwal maintained that his share was more like an investment - and he did exit with a $500 million gain - there have been reports that he wanted Anglo American to be his vehicle to further expand globally.

He had also, as a Financial Times report pointed out, wanted to merge Anglo American with Hindustan Zinc, but it didn't work out. Hindustan Zinc will now be his only listed entity.

"This (de-listing of Vedanta) may be a sign of full stop to big ambitions," is how an industry expert reads it.

It may seem so, especially when peers like Rio Tinto, the mining major, are prowling for acquisitions as the global mining industry struggles to come to terms with the disruption caused by COVID-19.

That's what the Agarwal of yore would have also done. Isn't it? In fact, his last two acquisitions have been in the steel sector, with Electrosteel and FACOR.

At the same time, can the master miner really stay away from the mining sector?

Is there more than meets the eye in the delisting?

"Delisting is fine as long as a fair price is paid to minority shareholders taking into account the premium for delisting," said Shriram Subramanian, Founder and Managing Director of proxy advisory firm InGovern Research Services.

In the May 12 announcement, Vedanta Resources has offered to buy out the 48.94 percent non-promoter shares at Rs 87.5 per share, which represents a premium of 9.9 percent over its May 11 closing market price.

"Promoters may think that the current stock price is far lower than the intrinsic value and choose to delist. However, there should not be any asymmetry of information between the promoters and other shareholders," added Subramanian.

Those in the industry pointed out at Vedanta's previous group restructuring exercises that had raised questions, including the merger between Sesa Goa and Sterlite.

The new entity, Sesa Sterlite, also included Vedanta Aluminium and its debts. Advisory firm IIAS had pointed out that while the merger will increase the new entity's revenue by about 35 percent, its debt would zoom by 400 percent.

Another senior executive from the industry wondered if delisting will bring some relief to the group when it comes to compliance. "You are no longer as answerable as earlier," he pointed out.

Will Agarwal follow the delisting with a relist?

The delisting provides Agarwal with an opportunity to have a fresh look at his organisation, and probably attract investments.

"With the markets being the way they are at present, valuation would be a problem for anyone who is looking for an investor. Chances are better to get a higher valuation after the company is made private ," said a senior executive.

Another industry official added that with a new organisational structure may throw up more options when it comes to listing. "Maybe Agarwal could look at listing some verticals, like power, separately," the official added.

Succession planning?

While taking a company private may not make succession planning easier or tougher, the industry has been looking for clues on what Agarwal is thinking about the future.

While a few years ago, the 66-year-old entrepreneur had talked about getting into a mentor-like role in the group, recent comments show his keenness to keep his boots on, and not hang them.

Agarwal, who has a son and daughter, has said the children "have their own passion and are doing very well."

His daughter Priya Agarwal is on the board of Vedanta, as is his brother Navin Agarwal.

Agarwal's search for a professional CEO to lead the Group seemed to have ended with Tom Albanese, the former Rio Tinto CEO who joined Vedanta in 2014. However, Albanese stepped down three years later, to be followed by Srinivasan Venkatkrishnan, an industry veteran.

But Venkatkrishnan's stint lasted just about a year, and Sunil Duggal, who was leading Hindustan Zinc, took over.

Will the delisting of Vedanta shed fresh light on Agarwal's succession plan?

Prince Mathews Thomas
Prince Mathews Thomas heads the corporate bureau of Moneycontrol. He has been covering the business world for 16 years, having worked in The Hindu Business Line, Forbes India, Dow Jones Newswires, The Economic Times, Business Standard and The Week. A Chevening scholar, Prince has also authored The Consolidators, a book on second generation entrepreneurs.
first published: May 13, 2020 01:54 pm