Sesa Goa Ltd and Sterlite Industries (India) Ltd, controlled by billionaire Anil Agarwal, are to merge to reduce the debt of parent Vedanta Resources Plc, which paid $8.67 billion to buy Cairn India Ltd in December.
To be called Sesa Sterlite, the merger would create the world's seventh largest integrated resource giant, with a market cap of Rs1,00,000 crore.
Belying earlier analysts expectations of Sterlite absorbing Sesa Goa (See: Vedanta set to merge Sesa Goa with Sterlite), Sesa Goa would absorb Sterlite in an all-share transaction, according to London-based Vedanta's statement. Investors would receive three Sesa Goa shares for five shares of Sterlite.
The company would transfer for $1 its 38.8-per cent holding in Cairn India, including a debt of $5.9 billion, to Sesa Sterlite, the new company that would hold 58.9 per cent of Cairn India.
Vedanta, has no experience in the oil and gas projects sectors, and is in the process of boosting its finances and ratings after its acquisition of Cairn India as it seeks to gain access to India's largest oilfield. Moody's Investors Service last month cut Vedanta's bond rating as it maintained a negative outlook following the acquisition, pushing the total debt of the group to $9.65 billion.
Vedanta's debt would be down 61 per cent to $3.8 billion and the debt-service liability would be cut by $300 million for the year ending 31 March, 2013, the company said in a presentation after it announced the merger.
"All in all, this is a progressive exercise by the Vedanta group, attempting an exercise of value unlocking from the group companies," says Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities Limited.