MAC: Mines and Communities

Vedanta In A Bear Hug, Scrip Falls 12%

Published by MAC on 2004-03-02
Source: The Economic Times India

Vedanta in a bear hug, scrip falls 12%

Abhinaba Das & Bodhivista Ganguli, The Economic Times India

March 02, 2004

Mumbai: Even as the surge in international commodity prices and demand continues unabated, Vedanta Resources, the first Indian entity to be listed on the London Stock Exchange, is having a torrid run on the bourse.

The Anil Agarwal-controlled non-ferrous metals major, which made its debut on the LSE late last year following a £507m mop-up, has been on a downhill journey, shedding around 12% ever since. The fall in the scrip has been particularly pronounced since the last week as the share price fell from £3.6 to £3.43 during the period.

The Vedanta Resources IPO, which was the second largest on the LSE last year, was priced at £3.9 per share. Vedanta Resources, through its wholly-owned arm Twinstar Holdings, currently owns 65.8% in Sterlite Industries and 80% in Madras Aluminium. Sterlite Industries, in turn, holds a 51% stake in Bharat Aluminium (Balco), the third largest aluminium company in India and a 65% holding in Hindustan Zinc, the country’s largest zinc producer.

Vedanta Resources’ high-profile chairman Brian Gilbertson, who earlier had a stint with the world’s biggest natural resources group BHP Billiton as chief executive, said last week that the fall in the share prices was largely due to the Union government’s “unexpected” move to reduce import duty, and a case pending in the Indian Supreme Court directed against India ’s privatisation programme “which received a lot of publicity in the UK .”

Mr Gilbertson, at that time, had said he expected the downtrend in the share price to be arrested, but the decline has only gathered pace since last week. The FTSE 100 has gained around 2% during the past three months.

Some analysts feel the fall in the share price of Vedanta could have also been impacted by the “image problem” of the group, which in the past ran into problems with the Securities & Exchange Board of India (Sebi). The company’s “controversial” move to delist shares from the Bombay Stock Exchange with a buyback scheme in which the offer price was a substantial discount to the book value had also invited a lot of criticism. Their plans to transfer the copper business and investments out of Sterlite Industries to another company, Sterlite Copper, also had to be dropped due to shareholder opposition.

“Whatever happened in the past is past. All I can say is that from now on, the company will adhere to the highest standards in corporate governance,” Mr Gilbertson said.

Analysts say, while there could be some “hiccups” in the short-term, the outlook for the stock will be positive in the medium to long term. “Overall interest in the mining sector is very high. Vedanta is well placed to reap the benefits in the long-run,” said an analyst.

Global prices of aluminium, copper and zinc — the group’s main businesses — are on a high and the outlook appears positive with China acting as the main demand driver.

International copper prices at $3,000 per tonne are at a seven-year high, while aluminium prices have shot up to $1,700 per tonne, which is at a two-and-a-half year high. Zinc prices have also surged to $1,125 per tonne, the highest in the past three years. Vedanta Resources has lined up plans to invest $2bn over the next three years in greenfield projects and to expand current operations. The company, through its Indian subsidiaries and associates, control 62% marketshare in zinc, 42% in copper and 21% in aluminium in India.

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