MAC: Mines and Communities

Vedanta's finance thief makes off with Anglo American payback

Published by MAC on 2019-07-31
Source: Bloomberg, Reuters

Anil Agarwal - head honcho for Vedanta Ltd - has finally sold out of one of the world's largest mining companies, UK-listed Anglo American Plc.

Speculation that he might intend to acquire the firm when the time was 'ripe', has now been dismissed, as the intricate web of profiteering manipulations by hedge funds, his family trust Volcan - not to mention international banker JP Morgan Chase - is exposed.

Billionaire Anil Agarwal’s Anglo American trade a gold mine

Bloomberg News

26 July 2019

Indian billionaire Anil Agarwal may be calling off his charge at Anglo American Plc – but he, his adviser JPMorgan Chase & Co., and the hedge funds that financed him can at least console themselves with the profits they made. The only people who were exposed to any real risk in the adventure look to have been Anglo’s shareholders.

Agarwal acquired a roughly 20% stake in 2017, shelling out barely any cash himself. The shares were acquired almost entirely from hedge funds who had borrowed them from other investors, with JPMorgan acting as broker. In return, the funds received an unusual bond issued by the billionaire’s investment vehicle, which would be repaid in the Anglo shares he had acquired. Notably, the structure limited the tycoon’s exposure to the ups and downs of Anglo’s share price.

Both sides have done well out of this. First, Agarwal. He has had to pay roughly 420 million pounds ($521 million) of coupons on the bonds. If his Anglo shares went up a lot – as they did – the terms allowed him to keep nearly 10% of his holding on redemption, which was announced on Thursday. On Friday, he sold that residual holding for almost 520 million pounds.

His 100 million-pound profit looks to be a 24% gain. But the internal rate of return will be much higher because he didn’t have to shell out of those coupons on day one.

The hedge funds weren’t taking much risk either. Having borrowed Anglo shares and sold them to Agarwal, their profit came from the coupon. The Anglo shares received on redemption would – broadly – cover their short position in the miner’s stock. Like the billionaire, the hedge funds would have put down very little capital in the trade. Their main risk was that the coupons wouldn’t get paid. But it would have [been] astonishing if Agarwal had defaulted.

JPMorgan’s fees aren’t clear. But the huge amount of ancillary banking activity here – effectively the stage management of the whole operation – is a fee in itself.

That leaves Anglo’s rank-and-file shareholders. The stock price has risen 76% since Agarwal popped up, so they seem well-rewarded. Some of them will have also received fees for lending out their stock. But of all the protagonists they were the only ones with direct exposure to the share price.

What’s more, they have suffered a period of uncertainty when it was unclear what Agarwal, with his massive holding, really wanted. They will be relieved that the register is losing an unpredictable force. Their returns are the most deserved.

(By Chris Hughes)

Billionaire Anil Agarwal sells Anglo stake


25 July 2019

Indian billionaire Anil Agarwal, the biggest shareholder in mining company Anglo American, said on Thursday he was divesting the nearly 20% stake he has held since 2017.

Agarwal began buying into Anglo American through a JP Morgan mandatory convertible bond in March 2017 and announced he was buying a second tranche in September 2017, taking his holding in the mining group to a total of 19.3%.

He would have had to make a decision next year on whether to buy the shares or seek to roll over the arrangement, which is effectively a loan.

On Thursday, Agarwal said in a statement the targeted returns had been achieved “even sooner than expected” and Anglo American’s share price had nearly doubled since he began his investment.

He said he had encouraged Anglo to refocus on its South African operations and to position its business for “the many opportunities available in the rapidly growing Indian market”.

Anglo American on Thursday declined to comment.

Earlier in the day it announced its strongest first-half earnings since 2011 and a $1 billion share buyback, its first since 2008.

The bonds issued in 2017 financed a 3.5 billion pound ($1.25 billion) investment by Volcan, Agarwal’s family trust.

After paying back the loan, Agarwal is left with a 1.9% stake in Anglo, which he is selling on the open market, industry sources said.

Agarwal, who is chairman of Vedanta, has always said the stake was an investment, based on his belief in Anglo as a company, for his family trust. He said it was unrelated to Vedanta and he was not planning a takeover bid.

(By Barbara Lewis, Justin George Varghese and Abhinav Ramnarayan; Editing by Jane Merriman and Kirsten Donovan)


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