Reports of cash-cows Cairn India and Hindustan Zinc (HZL) being merged into mining baron Anil Agarwal's flagship Vedanta Resources' Sesa Sterlite have been doing the rounds of late. This move would help them create a global natural resources giant to rival Rio Tinto or BHP Billiton. In addition, it would help reduce Sesa's net debt of approximately Rs 32,500 crore.
Tom Albanese, CEO, Sesa Sterlite says reports of the amalgamation are speculative as of now. However, they will certainly explore the merger to work on a simpler corporate structure.
Even though Indian economy is suffering due to shortage of coal and uncertainty looms in coal sector post deallocations, he is encouraged by government's prompt moves on coal block auctions and sees opportunities for demand growth in India, as global oil environment has been incredibly dynamic lately.
Meanwhile, he remains supportive of government's bid for divestment in HZL. In addition, he stays cash flow positive in Cairn India, as the company has benefits of very low cost structure.
Albanese sees promoters hiking stake in the company as a sign of confidence in the long haul. Going ahead, the mining major plans to work on ramping up iron ore production, he says in an interview with CNBC-TV18's Ekta Batra and Nigel D'Souza.
Below is the verbatim transcript of the interview:
Ekta: You join us on a day where three of your stocks Hindustan Zinc, Sesa Sterlite and Cairn India are down on the bourses because of reports indicating that Cairn and Hindustan Zinc might eventually be merged into Sesa Sterlite and that the company has already hired consultants to look at this. Can you comment on this?
A: First of all, the markets have generally weakened the resources sector based on broad range of macro economic activity driven by your oversupply in some of these products. So, again this is part of the normal part of the cycle. I want to reinforce the low cost nature of our businesses and the diversified nature of those businesses. Over the years we have said that it is a priority of the board to simplify the corporate structure and of course the Sesa Sterlite merger about a year and half ago. So, it is really a very important step along those directions. Since then of course many have been saying, what is the next step, can you simplify even further and of course we have been exploring odd ideas. We get ideas and we get thoughts from everyone else but at this point that is really all we can say about it.
Nigel: Getting to the main talking point of last couple of weeks with regard to the Mines and Mineral Development and Regulation (MMDR) ordinance. How much of a positive is it for you once it gets pass, in fact now that it's stuck, what is your view on it and importantly with regard to pricing of non-coal products. How do you think they are going to be priced?
A: We have been proponents for an auction approach to break the current logjams for quite sometime. So I am supportive of the current efforts to amend the mining legislation. This is about getting the mining sector off ground zero, getting and moving again. We have seen this in coal and we have seen in other sectors where history of controversy almost decades of it and some of the allocations, practices and approaches has created an element of distrust on any transfer of assets from the public space to the private space. So for me auctions are way to regain that trust and for me the auction process is not so much about revenues coming into the state from the private sector is much assuring for transparency of the pricing of those resources owned by the state so they can be developed by private companies.
Therefore, I am a supporter of this. I think there will be quite a number of details, we worked that over time and in those leases where everyone has prefect information about the resources, the size of resources, the market for that resources, everyone would go in with same bit of information but practically around India most of the blocks that are going to be considered will not have perfect information. There still is geology that has not been fully completed. It is going to be up to someone investing capital to finish that geology. So different people will be looking at with different lenses, different technical lenses, different marketing lenses, different applications and that will create the competition and that will create the auction.
Ekta: Can you just tell us whether you would be in favour of a possible merger of Cairn and Hindustan Zinc into Sesa-Sterlite eventually because the fear is that both Cairn and Hindustan Zinc are net cash companies whereas Sesa-Sterlite has a debt figure of over Rs 29,000 crore so it wouldn't be fair for shareholders of Cairn and Hindustan Zinc to get their cash diluted in terms of a merger?
A: Let me make it absolutely clear, this is speculative. We had the Sesa-Sterlite merger year and a half ago, we have said we are going to look for ways of simplifying the company. So, obviously we are going to be exploring those opportunities. Anything that would happen or could happen has to take quite a range of complicated pieces into account. It has take in a range fairness for all the shareholders, it has to take into account the regulatory regimes in a number of multiple jurisdictions and it has taken into account the fact that the government of India owns a sizeable piece of HZL. So, these are all things that would need to be considered but this is strictly speculative and it is part of that progression of what we have discussed in the past about simplifying the corporate structure.
Nigel: What is the update on HZL - which fiscal year it is going to go through because this has been a long prolonged process and also your final bid for HZL, is it at around Rs 150, is there any chance that you are going to make the bid more attractive and maybe throw the bate to the government of India? What is your take on that with regard to HZL, where exactly is this playing out?
A: I think this is in hands of the government of India. There is no bid out there, the government indicated its interest in disinvestment which we are supportive and from our perspective, from the markets perspective this would be an auction type approach and again the details of that auction are pending. We haven't heard anything and we look forward to hearing something and from my perspective we would look forward to the government announcing its intentions and to the extent we would review it and if it looks attractive we would be participating.
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