Indian billionaire Anil Agarwal, owner of London-listed conglomerate Vedanta Resources, announced last Sunday (14) plans to merge his cash-rich energy company with his struggling resources arm, a move aimed at streamlining debt.
Shareholders in Cairn India, India’s top private oil producer, will get one share in Vedanta Limited, the country’s biggest producer of aluminium and copper, for every held, the companies said in a statement.
The boards of both companies approved the move to be completed in the first three months of 2016 after meeting regulatory requirements and any concerns from shareholders.
Agarwal said the move was a “significant step” towards simplifying Vedanta Resources’ structure and creating “long term sustainable value”.
Vedanta Limited chief executive Tom Albanese said the deal moved the companies closer to building an Indian integrated resources group, such as Rio Tinto or BHP Billiton.
“I am quite excited by this deal and it marks another step towards forming a first natural resource giant from India,” Albanese told reporters.
Ahead of the merger, analysts said Vedanta Resources could be using the deal to cut debt.
Cairn has $2.7 billion (£1.4bn) in cash while Vedanta Limited, whose profits have been hit by global slumps in metal prices, has debts of more than Rs 777bn (£7.7bn), according to Bloomberg.
“This consolidation makes good sense for Vedanta because as a natural resource company its projects are typically high risk and highly capital intensive,” PriceWaterhouseCoopers India analyst Kameswara Rao told reporters last Sunday.
“To manage such risks, it makes sense to consolidate and get the ability to allocate the right amount of capital when needed while keeping cash flows stable.”
Vedanta Resources had paid more than $8bn (£5bn) to UK-based energy giant Cairn in 2011 for a majority stake in Cairn India.
The oil unit was recently hit with a $3.3bn (£2bn) tax notice by Indian authorities, a move that the firm has challenged in the Delhi high court.