Metal Gleam

He is a risk-taker who has a knack for spotting low-value companies. In that sense, Sterlite's Anil Agarwal is emulating Ispat's L.N. Mittal who has made a global name by buying sick steel firms and turning them around. Agarwal is hoping to do the same for gold, copper, aluminium and zinc. And like Mittal, Agarwal wants to give up his Indian citizenship, shift his headquarters to London where he has a £20-million house, and force himself into Britain's list of 20 richest individuals.

There's a major difference though. Unlike Mittal, the Sterlite supremo has been dogged by controversies, be it insider trading, influencing government orders, or managing cheap acquisitions of PSUs. But after his dashing debut on the London Stock Exchange—his $700 million IPO was oversubscribed five times—Agarwal's latest gamble has pushed him into the world's who's who of metals business.

On December 10, his holding company, Vedanta Resources, was listed on the lse, after the biggest IPO on the exchange this year. And it became the fifth-largest metals group in the world with earnings of $300 million this year. Agarwal, who started with a small family-run metal fabrication unit in Bihar, is now worth £800 million. And he's already gloating about his feat: "Setting up and listing Vedanta is a huge step as it provides a platform for future growth. It brings the group into global limelight, to be recognised as an international metals and mining group."

Under the new restructuring of the group's operations, Vedanta will own majority stakes in Sterlite Industries and the Madras Aluminium Company (Malco) through its arm, Twin Star Holdings. Sterlite, in turn, owns a majority in the Bharat Aluminium Company (Balco), the third-largest aluminium company in India, and another 46 per cent in the ailing Hindustan Zinc: the two are PSUs that have recently been privatised by the Indian government. Apart from these two, Sterlite owns sizeable holdings in two gold mines in Armenia and two copper mines in Australia.

Now, the Vedanta success will finance his forthcoming big-ticket acquisitions. On the cards is a $2-billion investment blueprint, which will concretise over the next three years. "A large amount of equity was required for projects in the pipeline and it wasn't possible to raise that in the Indian markets. This is both because of the limited depth of the Indian capital markets and because international markets recognise and value metals and mining companies better. It will also be a platform for future equity raising and 'paper currency'," says Agarwal.

He has his eyes set on the forthcoming divestment of National Aluminum Company (Nalco), India's second-largest company. Admits Agarwal: "Nalco is a very important company in general in the industry. We'll assess the impact of Nalco at a later stage if the disinvestment process proceeds." With Nalco, Agarwal will become the largest Indian player in both copper and aluminium. Today, he's behind the A.V. Birla group in the latter segment. His group has also bid for Zambia's Konkola Copper Mines, the country's largest copper deposits which lost $159 million last year.

Sources indicate that Sterlite has already won the Konkola race. But is Agarwal stretching himself too far? Analysts feel his quest may overexpose him in the market. Says a Calcutta-based financial expert: "He's in a hurry for Nalco. But there are other ways of raising money. Mittal has done it, even Hindalco has done it without going to the market like this." The other problem that attends Agarwal is his not-so-clean image, which may rock his global plans.

A village demonstration in Ratnagiri in '95 forced him to abandon his copper smelter plan. A gas leak in his Tuticorin unit forced him to shut down the smelter the next year.In 2000, a controversy regarding a telecom contract with the DoT turned a bit messy. Around that time, Sterlite's senior managers faced a SEBI probe for insider trading. Finally, cag indicted the group for irregularities in the Balco takeover.

According to Balco sources, several assets of the then state-owned firm were not taken into account during the final valuation. And that allowed Sterlite to pay Rs 551 crore instead of the estimated Rs 3,000 crore that the PSU was worth for acquisition. Explains a former Balco manager: "The new cold rolling mill, the captive power plant and the company's land assets were not duly represented in the valuation process. Even its Asansol plant was shown as a zero-value unit even though it was the only foil-making unit in the public sector."

Despite these hurdles, he has always come out on top. Recently, Sterlite drew flak for its plan to buy back its shares from the open market—at half the prevailing price. But Agarwal pushed it through. One of his secrets has been the ability to think ahead of competition. He made his early fortunes after he branched out into cable manufacturing at a time when the industry was still unfolding in India. Later, he jumped into optic-fibre cables, much before the telecom boom.

Agarwal's future is well-charted and he expects a $5 billion turnover by 2005. His strategy is designed to make him an integrated global player in cables, copper and aluminium, and the possible acquisitions are along that line. He already has a leading position in the cable industry and near-monopolistic presence in optic fibres. His metal assets are better than anyone's.

With his new headquarters in London, he's best positioned to carry out his operation on a global scale. Says a financial expert: "Agarwal saw that the valuation of shares in the international market was higher than in India, so he repackaged his Indian options and presented it as an international player." Adds Agarwal: "Vedanta's vision is to be a leading international metals and mining company delivering superior shareholder returns on an ongoing basis. Its objective is to build a world-class metals and mining company and generate strong financial returns." He is well on the way, given his mettle and ability to strike while the iron is hot.