Vedanta may make Sterlite holding firm
The firm bought 58.5 percent stake in Cairn India last year for $8.67 billion.
New Delhi: Anil Agarwal-led Vedanta Resources is likely to restructure the group's various subsidiaries by making Sterlite Industries their holding company, which will also include the recently acquired oil explorer Cairn India.
Sources close to the development said the London-listed metals and mining major may merge leading iron ore producer Sesa Goa with Sterlite Industries.
"Vedanta's stated strategy is to simplify and consolidate its corporate structure. Management reviews options to deliver this strategy on an ongoing basis and will update the market as appropriate," the company said in a statement.
The need for restructuring may have arisen because of the huge debt the group had to raise to fund the $8.6 billion acquisition of Cairn India, sources said.
The new round of restructuring of the group is expected to take place just after three years of rejig in 2008, post the acquisition of Sesa Goa in the previous year.
Sources said the group needs to streamline cash inflows from its subsidiaries to retire debt.
As on 31 March 2011, the group had a gross debt of $9.75 billion, while it was sitting on a cash reserves of $7.77 billion.
Vedanta bought 58.5 percent stake in Cairn India last year for $8.67 billion. The stake includes its subsidiary Sesa Goa's holding 20 percent in Cairn India.
The group produces aluminium, copper, zinc, lead, silver, iron ore and commercial energy. It has operations in India, Zambia, Namibia, South Africa, Ireland and Australia.
Vedanta Resources hold 54.6 percent stake in Sterlite Industries and 55.1 percent stake in Sesa Goa. The group also includes Hindustan Zinc and Vedanta Aluminium among others.
Sterlite Industries India is the principal subsidiary of Vedanta Resources with operations in India and Australia.
The restructuring in 2008 aimed at simplifying the corporate structure into three commodity businesses with fewer cross-shareholdings and overlapping businesses, besides focussing on increasing efficiencies and streamlining decision-making.
With this move, Vedanta will be a clear beneficiary as they can pass-on debt-laden Vedanta Aluminium to Sesa Sterlite.
As against market expectation of Cairn's stake being transferred to Sterlite, the parent group has instead transferred the 38.8 percent stake to Sesa Goa, which will now have the burden of servicing the debt.
To reduce debt, Vedanta is offloading 38.8 percent of Cairn to Sterlite and also merging cash cow Sesa Goa with it. Will this strategy work?