Through a restructuring move, Vedanta will merge metals producer Sterlite Industries Ltd. with iron ore producer Sesa Goa Ltd. to create the new company, Sesa Sterlite.
"Sesa Sterlite will be one of the largest global diversified natural resources majors, supporting India's industrial growth," Vedanta Resources Chairman Anil Agarwal said in a news release. "This transaction is a natural evolution, leading to simplification of the group's structure."
Vedanta owns about 55 percent of Sesa Goa and about a 58 percent direct and indirect stake in Sterlite. Under terms of the merger, Vedanta will own 58.3 percent of Sesa Sterlite.
Vedanta's 38.8 percent holding in oil and gas producer Cairn India will also be transferred to Sesa Sterlite, thus increasing Vedanta's stake to 58.9 percent. In addition, Vedanta Aluminium and Madras Aluminium will be transferred to the new company.
In an interview with India's Economic Times newspaper, Agarwal, who is ranked 16th in Forbes magazine's 2011 list of wealthiest Indians, said the merger reflects his vision to create a huge diversified resource company based out of India.
Pointing to mining giants that have made their mark in major markets, Agarwal said: "Brazil has Vale, Australia has BHP Billiton, (the) U.K. has Rio and South Africa has Anglo-American. We wanted to create one that can use the abundant deposits that India has in minerals."
As for expansion plans, Agarwal said Cairn is expanding to 175,000 barrels, which will eventually be increased up to 400,000 barrels. For Sesa, capacity will double from 20 million tons to 40 million tons.
Sesa Sterlite will also pursue steelmaking but only through a joint venture, he said, "since we know nothing about steel."
Agarwal said a principal objective of the merger is to simplify the group structure and "have synergy."
Under the deal, Vedanta's debt is expected to be reduced to $3.75 billion from around $9.64 billion, after the company transfers $5.9 billion in debt accrued from the Cairn India purchase to Sesa Sterlite, The Wall Street Journal reports.
"The interesting question," Arvind Mahajan, head of natural resources and infrastructure at KPMG India told the Financial Times, "is whether the deal's benefits will be used to expand into new business areas, especially coal mining but also infrastructure, power or elsewhere in the oil and gas value chain."
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