On 16 December 2020, the beleaguered Videocon Industries Ltd (Videocon), in a regulatory filing, informed investors of an approval by its committee of creditors (CoC) of a resolution plan submitted by Twin Star Technologies Ltd. Twin Star Technologies is promoted by the family of billionaire Anil Agarwal. Media reports say Mr Agarwal of Vedanta group is keen on increasing his stake in the Ravva oil field in the Krishna Godavari Basin located in coastal Andhra Pradesh.
Through Cairn Oil & Gas, a vertical of Vedanta Ltd, Mr Agarwal already owns a 22.5% stake in the Ravva oil field. State-run Oil and Natural Gas Corp (ONGC) has a 40% stake in Ravva, while Videocon Petroleum has 25% with the balance 12.5% with Ravva Oil Singapore Pvt Ltd.
This means, after taking over Videocon, Mr Agarwal would indirectly control 47.5%, which is larger than ONGC’s stake in the Ravva oil field. The question is: how will he fund the takeover? In the past, the billionaire had used funds from his own companies and subsidiaries to acquire stakes in his personal capacity, mainly through Volcan Investments, a family trust.
Remember Anglo American plc? In March 2017, Mr Agarwal began buying into Anglo American through a JP Morgan mandatory convertible bond. By the time he bought a second tranche in September 2017, his stake in the mining group was about 20%, making him the biggest shareholder of Anglo American. The bonds issued in 2017 financed a $1.25 billion investment by Volcan. The ownership and voting rights of Anglo American shares remained with Volcan, Mr Agarwal’s private investment vehicle or family trust.
However, in July 2019, Mr Agarwal decided to encash his investment in Anglo American. A statement issued by Vedanta at that time stated that Cairn India Holdings Ltd (CIHL), an overseas subsidiary of Vedanta Ltd, is making a gain of $100 million by entirely unwinding the investment made through Volcan Investments.
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report from Bloomberg describes the Anglo American adventure of Mr Agarwal as “It once looked like Anil Agarwal could shake up the mining industry by amassing the biggest stake in Anglo American Plc. But in the end the Indian tycoon’s lack of financial firepower forced him to unwind his investment.”
“For two years, Mr Agarwal kept insiders and Anglo executives guessing about why the billionaire decided to take a position in the London mining giant. The deal -- structured in a complex way as to give voting rights but not much exposure to the shares -- seemed to make sense only if Mr Agarwal planned to push for a major change, like a takeover or breakup. In the end, he decided to do neither,” the report says.
Media reports say, Mr Agarwal would have made a gain of about $500 million from this deal. However, the Bloomberg report also points out, “The biggest challenge Mr Agarwal would have faced is the surge in Anglo’s share price since he bought his first tranche. His two listed ventures, Vedanta and Hindustan Zinc Ltd, slumped over the same period making any kind of merger hard to execute.”
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report from the Economic Times (ET) mentions a $1.25 billion loan given to the promoter group in 2014 which was used by Vedanta to repay another inter-company loan taken for acquisition of the oil company. “The move had spooked investors then raising several questions about related party transactions and later Vedanta rolled over that loan,” it says.
In 2016, the ET report says, “Mr Agarwal merged Cairn India with Vedanta mainly to use the Rs23,290-crore cash lying with Cairn to partially pay off Vedanta’s debt. The deal was sweetened after a widespread protest by minority shareholders including Life Insurance Corp of India (LIC).”
Coming back to the Videocon takeover deal, the new buyer is indirectly related with Mr Agarwal. Twin Star Technologies, the buyer of Videocon, was incorporated in 2015. It is a wholly-owned subsidiary of Twin Star Overseas Ltd, which itself is a unit of Volcan Investments Cyprus Ltd.
Both Vedanta Resources and Volcan Investment Cyprus are holding companies of Vedanta, the listed flagship company of Mr Agarwal’s empire. This brings Twin Star Technologies, who is buying Videocon, under Mr Agarwal’s control.
While the Vedanta group has a huge debt piled up, some of the group subsidiaries have huge cash reserves. As on 30 June 2020, Vedanta and its subsidiaries have cash and cash equivalent worth about Rs33,781 crore against a gross debt of Rs58,568 crore. Hindustan Zinc has Rs15,511 crore as surplus cash while Cairn India has net cash of Rs4,020 crore.
In October this year, S&P Global Ratings revised its outlook to negative on Vedanta Resources due to the company's failure to delist its subsidiary Vedanta that it says raises risks over the company's ability to sustainably service its debt beyond the next 12 months.
"Vedanta Resources has the liquidity to meet the immediate debt maturities, given its access to cash at the subsidiary level. However, we view this as unsustainable beyond a year because it would reduce the company's consolidated cash materially. Improving funding access at Vedanta Resources--the holding company--is, therefore, critical. The rating on Vedanta Resources assumes the company will pursue options to make its corporate structure more efficient, which would be supportive of liquidity," the ratings agency says.
According to S&P, dividend payments and intercompany loans will be adequate for Vedanta Resources for debt servicing over the next 12 months. Vedanta Resources faces debt maturities of about $1.8 billion over the next year. These include a $414 million loan due in December and a $670 million bond due in June 2021.
As of 30 June 2020, Vedanta Resources reported consolidated cash of about $4.2 billion at its subsidiaries, excluding a loan of about $300 million from Cairn India Holdings Ltd in the first quarter of fiscal 2021.
According to disclosure of related-party transactions submitted to the Exchanges on 27 November 2020, Vedanta had extended a $956 million loan to its promoter, Vedanta Resources and its subsidiaries channelled through Vedanta’s overseas subsidiary, Cairn India Holdings Ltd (CIHL).
In a letter, London-based hedge fund Kyma Capital, which owns less than 1% in Vedanta, has asked the company to recall a $956 million loan extended to units of its parent. Quoting Kyma Capital, which is run by Akshay Shah, a former manager of Blackstone Group Inc,
another report from BloombergQuint says, “The loan represented an ‘improper transfer of value’ away from minority shareholders to Agarwal-controlled Vedanta Resources…
This is a clear-cut case of siphoning off funds and value that belongs to Vedanta and all its stakeholders.”
Curiously, the loan extended by CIHL to Vedanta Resources has not been mentioned in the section on ‘description of material indebtedness’ by Vedanta Resources in its prospectus for the sale of bonds issued in this month. Vedanta Resources termed this as intercompany loan. This loan is mentioned on Page 31 of prospectus. However, the paragraph, where the loan is mentioned ends with "At the Company consolidated level, the Vedanta intercompany loans will be eliminated on the basis of being an intergroup transaction."
According to the filings with the ministry of corporate affairs (MCA), the directors of Twin Star Technologies are, Pravin Agarwal, Anand Gopaldas Agarwal, Ankit Kumar Agarwal and Prasad Arun Dahibhate.
Mr Dahibhate is also the finance controller of Sterlite Technologies Ltd (Sterlite) which is a fellow subsidiary of Twin Star Technologies. The two companies also share the same corporate as well as email addresses.
We sent an email to Vedanta officials. Till writing this story, we have not received any reply from them. We will incorporate the response from Vedanta as and when we receive it.
How can mf sell 5% stake to promoters when they know it is bought by owners.
Who is selling these stakes. Do they really have investors interest if they are mfs. All know that lic had valued it at 320 still someone sold 5%.
It is worth investigating this.