Vedanta Resources is aiming to become a “complete natural resource company” to rank alongside BHP Billiton and Vale, the London-listed group’s chairman said after it sealed a merger between its Indian mining arm and the oil explorer Cairn India.
An initial all-share move by Mumbai-listed Vedanta Ltd, which mines metals including zinc, aluminium and copper, was resisted by Cairn India shareholders last year. But this week they accepted a sweetened offer giving the deal an implied valuation of about Rs350bn ($5.2bn).
Anil Agarwal, the 62-year-old Indian entrepreneur who listed Vedanta Resources in 2003, said that India now had a resources group with the scale to play a key role in the country’s growth. He owns 68 per cent of Vedanta Resources, which in turn controls 63 per cent of Vedanta Ltd.
“This is the only company out of India that will be a complete natural resource company,” he said. “That is very important. There is BHP from Australia, Vale from Brazil, and for India — with 1.3bn people — it is important to focus on natural resources.”
During its two years in power, the government of prime minister Narendra Modi has made a series of ambitious pledges for infrastructure investment in India, with $1.5tn of spending required over the next decade, according to the finance minister.
Such investment could see the country rival China as a driver for growth in the global metals market, Mr Agarwal said. “The Modi government has huge plans for infrastructure. We’ve never seen the kind of investment that’s come to India under his regime. This will have a huge impact.”
China accounted for “virtually all” the increase in consumption of six key metals from 2000 to 2014, according to a World Bank study, while India’s share of global consumption ticked up from 1.9 per cent to 3.4 per cent.
But India has since emerged as an important source of growth: the World Steel Association has forecast 5.4 per cent increase in Indian steel consumption this year amid a global decline of 0.8 per cent.
“We believe that India will have huge demand — the consumption of all these metals is 10-15 per cent of China’s, with the same population,” Mr Agarwal said.
While some analysts had argued that even the improved offer undervalued Cairn, Mr Agarwal argued that its shareholders would benefit from exposure to Vedanta’s metals businesses, which would insulate them against swings in the oil price.
He played down suggestions that the merger had been undertaken partly in order to reduce Vedanta Ltd’s $4.1bn net debt using Cairn India’s $2.6bn net cash, arguing that the zinc, iron ore and aluminium miner had a stronger debt position than its peers.
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