Billionaire Anil Agarwal’s Vedanta Ltd. will absorb unit Cairn India Ltd., combining India’s biggest miner of aluminum and copper with its largest onshore oil producer.
The all-stock deal will offer each Cairn India shareholder one ordinary share, and a 7.5 percent-redeemable preference share of Vedanta Ltd. with a face value of 10 rupees, according to statements from both the companies on Sunday. Post-merger, London-listed parent Vedanta Resources Plc’s holding in Mumbai- listed Vedanta Ltd. will drop to 50.1 percent from 62.9 percent.
The combined entity will help Agarwal, weighed down by $12 billion of group debt amid a downturn in crude oil and aluminum, reorganize the group’s assets and liabilities. It will also give him access to Cairn India’s $2.7 billion of cash.
Vedanta, the nation’s second-most indebted metals company, is facing shrinking profit margins after the premium paid for immediate delivery of aluminum plunged 70 percent from a November record. A decline in crude prices since June last year led Cairn India to its first quarterly loss in more than seven years in the three months ended March 31.
Slumping crude prices prompted Vedanta to take a $3 billion non-cash writedown on account of the decline in the goodwill value of Cairn India. The oil producer decided to cut back its capital expenditure plans for the year ending March 31 to $500 million from $1.2 billion.
Vedanta’s debt surged to 777.52 billion rupees ($12 billion), excluding a $1.25 billion intercompany loan from Cairn India, after Agarwal bought the oil explorer in 2011 and began expanding aluminum and power-generation capacity. More than a quarter of the company’s operating profit came from aluminum in the last quarter, with other businesses including zinc and crude oil contributing the remainder.
The metal producer has a $1.9 billion of mostly short-term loans maturing this year, which it plans to refinance into longer-term instruments, Chief Financial Officer D.D. Jalan said in an earnings call on April 29.
Vedanta, earlier known as Sesa Sterlite Ltd., in 2013 consolidated its iron ore mining business by merging Sesa Goa Ltd. with Sterlite Industries (India) Ltd., which ran copper and aluminum businesses. Vedanta Resources also transferred its 38.8 percent holding in oil producer Cairn India, including a debt of $5.9 billion to the new company.
Vedanta also owns a 64.9 percent stake in Hindustan Zinc, which has $4.8 billion of cash, according to data compiled by Bloomberg. The Indian government has a 29.5 percent stake in the zinc producer, which has more cash than Cairn India.
“The group continues to evaluate a transaction with the government of India,” Vedanta Resources said in its exchange filing.