Indian non-ferrous metals producer Sterlite Industries said its board will meet on Saturday to consider restructuring proposals, raising the possibility of a reported merger with sister company and iron ore miner Sesa Goa.
The companies, both majority-owned by London-listed miner Vedanta Resources, have been expected to merge after media reports in the past week fuelled hopes the move would streamline the group's complex structure.
Vedanta trades at a discount to the sector because of the $9 billion debt it carries on its balance sheet, but also because the group is made up of a web of majority-owned subsidiaries, often listed, making it harder to repatriate cash to the parent.
"It is a great opportunity because this has been an issue with the group, and investors want to see a consolidated structure," a sector analyst at Mumbai's Edelweiss Securities said.
Earlier this week, Vedanta said it aimed to simplify and consolidate its structure and review options on an ongoing basis, but had given no details.
Ahead of the statement, shares in Sterlite, valued at $7.9 billion, closed 3.1 per cent higher in a weak Mumbai market . Shares in Sesa, valued at $4 billion, closed down 0.2 per cent.
Vedanta owns about 55 percent of both companies. At 1350 GMT, Vedanta shares were up 3.3 per cent in London trading.
BNP Paribas, in a note to clients on Thursday, had estimated that between 1.53 to 1.92 shares of Sterlite for every one share of Sesa Goa would be a fair swap ratio for the transaction.
A ratio substantially different from this would be unfavourable for one or the other company, the brokerage said.
SECOND ATTEMPT
Any merger between Sterlite and Sesa Goa would be Vedanta's second attempt at restructuring the group structure.
A similar exercise in 2008 was aborted after strong investor opposition to the plan and the valuations of some of Vedanta's African assets.
"Restructuring is subject to approvals from a number of minority shareholders and regulators in the U.K. and India," ratings agency Standard & Poor's said in a statement on Thursday.
"The restructuring will take time to implement because the company could face difficulties in getting these approvals," it said, but added the plan would improve Vedanta's ability to service it debt repayments, currently at $500 million a year.
Sterlite held cash balances of 215.5 billion rupees ($4.4 billion) at December-end, while Sesa Goa held cash of 4.5 billion rupees ($92 million).
Analysts said they would keenly watch how the group's shareholding in oil and gas producer Cairn India would be restructured.
Vedanta acquired a majority stake in Cairn India late last year in an $8.7 billion deal, buying most of the stake from British explorer Cairn Energy Plc. However, 20 percent of the group's shareholding is held under Sesa Goa.
Copywright Thomson Reuters 2012
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