Mining baron Anil Agarwal-led Vedanta Resources plc, which owns 50.1 per cent of Mumbai-listed Vedanta Ltd, has sought shareholders nod for the takeover of Electrosteel Steels Ltd for a total consideration of Rs 5,320 crore.
In a notice calling for a shareholders meeting on May 18 for the approval of the acquisition, London-listed Vedanta Resources said the Kolkata bench of the National Company Law Tribunal had on April 17 approved bid of its unit, Vedanta Ltd for takeover of Electrosteel, which was auctioned to recover Rs 14,177.43 crore of unpaid loans of banks.
The National Company Law Appellate Tribunal (NCLAT), however, had on May 1 directed status quo after Renaissance Steel challenged its takeover bid for Electrosteel being rejected by the Committee of Creditors (CoC).
Company officials said the shareholder approval and the legal challenge are two separate things which can go parallelly.
In the shareholder’s notice, Vedanta Resources Chairman Anil Agarwal said as per the resolution plan, Vedanta Star Ltd, a wholly-owned subsidiary of Vedanta Ltd, will take 90 per cent stake in Electrosteel for Rs 1,805 crore and provide additional funds of Rs 3,515 crore to the company by way of debt.
Of the total outstanding of Rs 14,177.43 crore, ‘unsustainable debt’ of Rs 7,618.24 crore would be converted into equity shares. After that Electrosteel’s share capital will undergo a share capital reduction. Following this, Vedanta Star will subscribe for new shares of the company for Rs 1,805 crore and also lend to it Rs 3,515 crore.
This would give Vedanta Star 90 per cent stake in Electrosteel. Of the remaining 10 per cent, 7.6 per cent would be owned by the lenders and 2.4 per cent of the original shareholders of the company.
Agarwal said the acquisition will provide the foundations for Vedanta to vertically integrate steel manufacturing capabilities which has the potential to generate significant efficiencies and improve the margins of the group’s iron ore business.
“The group has spent time evaluating the steel industry, both globally and in India, and considers now to be an optimal time to expand the group’s capabilities through the entry into this attractive market,” he said in the note to shareholders.
Electrosteel acquisition would complement the Group’s existing iron ore business, which comprises mining operations in Karnataka and Goa and a pig iron plant in Goa.
“Vertical integration through acquiring steel manufacturing capabilities has the potential to generate significant efficiencies,” he said.
Also, it will provide Vedanta with a stronger bidding position for future acquisitions. “Many bidding processes in India are conditional on the bidder’s existing capabilities complementing the asset that is the subject of the bid. The (Electrosteel) plant will complement other assets in the steel manufacturing industry that the group may wish to acquire in the future,” he added.
Electrosteel was incorporated in Ranchi, Jharkhand as a public company on December 20, 2006 and has been listed on the Bombay Stock Exchange and National Stock Exchange of India since October 2010. It operates a steel manufacturing facility near Bokaro, Jharkhand. The plant has a capacity to produce 1.5 million tonnes per annum of steel, which is expandable to 2.5 million tonnes in future.
The firm was referred for bankruptcy resolution after it was unable to pay the debt due to a downturn in the global steel industry. Electrosteel had posted a loss of Rs 1,463.48 crore on total revenue of Rs 2,876.83 crore in the fiscal year ended March 31, 2017. In the first nine months of 2017-18 fiscal, it reported a loss of Rs 866.5 crore on total income of Rs 2,440.35 crore.
“Subject to completion of the acquisition, Vedanta Limited may contribute towards the working capital and capital expenditure requirements of Electrosteel,” Agarwal said. “Development plans are also being considered to increase the capacity of the plant up to 2.5 million tonnes, establish a railway siding for the transportation of materials and invest in information technology automation, environmental compliance, administration and other related infrastructure developments.”
He said the Vedanta board considers the acquisition to be in the best interests of shareholders as a whole.