Lenders to get 7.6 pct in Electrosteel after Vedanta takeover

Asian Age reported that lenders will get 7.6 per cent stake in Jharkhand-based steel mill Electrosteel if Vedanta Ltd’s bid to take over the company goes through. Mining baron Anil Agarwal-led Vedanta Resources plc, which owns 50.1% of Mumbai-listed Vedanta Ltd, has sought shareholders nod for the takeover of Electrosteel Steels Ltd for a total consideration of INR 5,320 crore.
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In a notice calling for a shareholders meeting on May 18 for the approval of the acquisition, London-listed Vedanta Resources said the Kolkata bench of the National Company Law Tribunal had on April 17 approved bid of its unit, Vedanta Ltd for takeover of Electrosteel, which was auctioned to recover INR 14,177.43 crore of unpaid loans of banks.

The National Company Law Appellate Tribunal, however, had on May 1 directed status quo after Renaissance Steel challenged its takeover bid for Electrosteel being rejected by the Committee of Creditors.

Company officials said the shareholder approval and the legal challenge are two separate things which can go parallelly.

In the shareholder’s notice, Vedanta Resources Chairman Mr Anil Agarwal said as per the resolution plan, Vedanta Star Ltd, a wholly-owned subsidiary of Vedanta Ltd, will take 90% stake in Electrosteel for INR 1,805 crore and provide additional funds of Rs 3,515 crore to the company by way of debt.

Of the total outstanding of INR 14,177.43 crore, ‘unsustainable debt’ of INR 7,618.24 crore would be converted into equity shares.

After that Electrosteel’s share capital will undergo a share capital reduction. Following this, Vedanta Star will subscribe for new shares of the company for INR 1,805 crore and also lend to it INR 3,515 crore.

This would give Vedanta Star 90% stake in Electrosteel. Of the remaining 10 per cent, 7.6 per cent would be owned by the lenders and 2.4% of the original shareholders of the company.

Mr Agarwal said the acquisition will provide the foundations for Vedanta to vertically integrate steel manufacturing capabilities which has the potential to generate significant efficiencies and improve the margins of the group’s iron ore business. He said that “The group has spent time evaluating the steel industry, both globally and in India, and considers now to be an optimal time to expand the group’s capabilities through the entry into this attractive market.”

He said that Electrosteel acquisition would complement the Group’s existing iron ore business, which comprises mining operations in Karnataka and Goa and a pig iron plant in Goa. He added that “Vertical integration through acquiring steel manufacturing capabilities has the potential to generate significant efficiencies.”

Source : Asian Age