Vedanta Resources POSITIVE FOR MINORITY SHAREHOLDERS

Vedanta Resources plc has decided not to pursue the proposed group restructuring as it was found to be detrimental to the interests of the minority shareholders. We have raised our concerns on the restructuring and posted 14 questions to the Vedanta Group, on 11th September 08, which are available in archives of Cover Feature.
However, it is said that the Vedanta Group and Indian entities are committed to simplifying and streamlining the Group Corporate Structure in the interest of all shareholders, which is ultimately desired and expected.
If you read those 14 questions it would get understood that why the restructuring was detrimental to the interests of minority shareholders. So drop of the said move should be held and viewed as positive by the market.
In the changed circumstances we feel that restructuring of the Indian entities should be done on the following lines:--

1) Create 4 verticals of Vedanta Group in India, instead of 3 verticals, proposed earlier.

2) These 4 verticals should be independent, with Vedanta as the promoter and should be:--

i) Sesa Goa – for iron-ore business

ii) Hindustan Zinc – for zinc and lead business.

iii) Vedanta Aluminium – for Aluminium and Energy business.

iv) Sterlite Industries – for end-to-end copper business with 100% interest in Asarco and CMT and 79.4% stake of KCM with existing copper business.

3) To implement the plans as per para 2 above,

a) Distribute 27.43 crore shares of Hindustan Zinc (HZL) held by Sterlite Industries (SIL) amongst the shareholders of SIL in the ratio of 4 shares of HZL for every 10 shares held in SIL. Option to buy back the residual stake in HZL, held by the Government of India, to the extent of 29.54%, being 12.48 crore shares, can remain with SIL.

b) Create one company for aluminium business with 2.6 MTPA capacity, which could be Vedanta Aluminium Ltd (VAL) and transfer stake of VAL, of 29.5%, held by SIL, amongst SIL shareholders, on the lines of HZL, stated in (a) above.
c) Transfer 51% stake of BALCO, 100% stake of Sterlite Energy Ltd. (SEL) and Aluminium Foil plant at Sanaswadi from SIL to VAL and issue pro-rata shares of VAL, based on fair valuations, to the shareholders of SIL.
d) Merge VAL with Madras Aluminium.
4) Transfer 79.4% stake of Konkola Copper Mines (KCM) on fair valuations to SIL and consideration thereof to be satisfied by issue of SIL shares to Vedanta.
5) Restructure and reduce the equity base of SIL, from presently Rs.142 crores, to about Rs.60 crores, post transfer of KCM stake to SIL from Vedanta.
6) Promoters stake in all the Indian entities to be held by Vedanta either directly or through its subsidiary like Twinstar Holdings, for which Indian investors should remain unaffected, and any inter-se transfer of promoters holding should not result in dilution of minority shareholders’ stake in various companies.
7) VAL needs to remain a listed entity and any restructuring of aluminium business can be routed through Madras Aluminium, which is presently a listed company with very low level of aluminium activity.

For doing all this, obviously, valuation of KCM and VAL would be key factors, as presently both these are held by Vedanta, which are getting pooled in the Indian listed peers. If they are again valued in favour of the Vedanta, it would be viewed adversely by the market.

Except for these two new projects coming in, rest all are merely re-allocations of the existing stake and projects amongst the four existing listed companies.
If it is done on the above lines, it should be able to please the minority shareholders and promoter Vedanta Group would be able to restore the damage already caused to the market capitalization, this would ultimately benefit them also as they are holding a large chunk of pie in all these 4 companies.
thanks