By Alex MacDonald
LONDON--UK-listed, India-focused Vedanta Resources PLC (VED.LN)
has a grand vision of raising its stake in majority-owned oil and
gas company Cairn India Ltd (532792.BY) by an additional 10% but
first it will focus on reducing net debt further, the company's
senior executives said Thursday.
Anil Agarwal, the company's executive chairman, told the Wall
Street Journal in an exclusive interview the company would like to
increase it stake in Cairn India by another 10 percentage points,
or 69% from the current 59% stake.
He declined to provide a timeframe but the company's Chief
Financial Officer D.D. Jalan said the additional 10% Cairn India
equity stake was part of a "broad vision" for the company and not a
concrete plan, since the company is currently focused on reducing
its gearing ratio of net debt to asset value to around 25% to 30%
from 31% in the last fiscal year ending March 31.
"The priority is [to] reduce our existing gearing and then
increase a stake in Cairn," Jalan told the Wall Street Journal in
the same interview. The company cut its net debt by 14.4% on year
to $8.62 billion at the end of March.
Vedanta has expanded all of its operations rapidly over the past
several years to benefit from growing commodities demand in the
emerging markets, particularly India.
It acquired a stake in Cairn India for $8.7 billion in 2011. The
stake accounted for about half of the company's keenly watched
earnings before interest, taxes, depreciation and amortization or
Ebitda last fiscal year, contributing to a 21% Ebitda rise to $4.89
billion.
Mr. Agarwal said he expects "our results to be better next year
because our capex program has come to an end and we will optimize
our assets. It will definitely be positive." The company plans to
ramp up production across several commodities, including mined zinc
and oil production from India and copper output from Zambia.
Mr. Agarwal said the company's hands were full at the moment and
there were no plans to pursue mergers and acquisitions although the
company was open to opportunities if they came along.
He also said the company remains interested in investing in
India, despite setbacks to its iron ore mining operations and
Lanjigarh alumina refinery last year. "I would not be cautious in
investing in India," he said, noting that Indian commodities demand
is growing at double-digit rates. More than 80% of the company's
sales come from India.
Vedanta's iron ore operations suffered a significant dent to
profitability last year due to mining bans imposed in the state of
Karnataka and Goa. The mining ban in Karnataka has been lifted, and
Vedanta expects to start production in June, but exports are still
banned. Meanwhile the ban in Goa is still in place and will likely
only be resolved later in the year, Mr. Agarwal said.
In the state of Odisha, the company had to also temporarily
close it Lanjigarh alumina refinery after the failing to secure
enough bauxite from the state to supply the refinery. Local
villagers are due to decide in the next five months whether a key
bauxite mine project nearby should go ahead or not.
Mr. Agarwal said the setbacks are largely due to effects of a
growing Indian democracy. The Indian government is still learning
how to prioritize its decisions in a democracy driven by 1.2
billion people, Mr. Agarwal said. "For them building a big plant
and making sure a poor man goes to school or he gets two square
meal is equal," he said.
Nevertheless, the growth and investment opportunities are
significant given that 40% of the population is between the ages of
18 and 25, Mr. Agarwal said.
Vedanta plans to spend about $3 billion on its oil and gas
operations, primarily in the Indian state of Rajasthan, over the
next three years. It also plans to invest $3.4 billion over three
years in metals and mining. This is lower than the $7.2 billion
spent on capital expenditure over the last three years.
Vedanta is also exploring for potash in India and is developing
a coal mine in India to help satisfy the 100 million tons of coal
its needs annually to run its power stations, Mr. Agarwal said. The
company plans to take part in coal block tenders that the Indian
government has been planning to launch for a while, Mr. Agarwal
said.
He also wasn't able to provide a timeline for when the Indian
government might close on Vedanta's $3 billion offer to buy the
government's 29.5% stake in Hindustan Zinc Ltd. (500188.BY) and 49%
in Bharat Aluminium, known as Balco. He said the government was
still interested in the sale, given a desire to pay down the
nation's budget deficit.
-Write to Alex MacDonald at alex.macdonald@dowjones.com
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