Vedanta Resources launches $1.25b offering, will boost iron ore output

17 June 2009 | 06:25 Code : 19291 Geoscience events
India-focused mining group Vedanta Resources Plc launched a $1.25 billion...

India-focused mining group Vedanta Resources Plc launched a $1.25 billion convertible bond on Friday and its iron ore unit unveiled plans to boost output by more than half, helped by a takeover.Shares in London-listed Vedanta closed 6.1 percent lower at 1,639.74 pence, making it the biggest loser in the FTSE 100 index due to expected dilution from the issue and as investors sold holdings to raise funds to invest in the bond.The group’s Mumbai-listed Sesa Goa unit rose as much as 12 percent, the highest in a year, with the iron ore producer saying output would jump after it bought the mining assets of the Dempo Group for 17.5 billion rupees ($368 million).The size of Vedanta’s offering has been increased to $1.25 billion, from the announced size of $1 billion, under an option with sole bookrunner JP Morgan, at a conversion price of $36.48.The offering will be used to help finance takeovers and to boost stakes in subsidiaries.Investors have been pressing for a clean-up of complex cross holdings in the London-listed group, which posted a 75 percent fall in attributable profit last year, partly due to the impact of minority stakes.In an initial stab at mopping up holdings, Vedanta said on Friday it spent $120 million to boost its Sesa Goa stake to 55 percent from 53 percent.Vedanta has previously said it wants to boost stakes in units Bharat Aluminium Co. (Balco) and Hindustan Zinc, in which the Indian government holds stakes of 49 percent and 35 percent respectively, as well as Sterlite Industries, where minorities own 40 percent.Vedanta -- which has operations in India, Australia and Zambia -- said the bonds due 2016 will have a coupon of 5.50 percent and that the conversion price was at a premium of 35 percent.Sesa Goa provided a timely example of Vedanta’s need for more funds to finance takeovers.The Dempo acquisition would help Sesa lift iron ore output by more than half to 22.75 million tonnes in 2009/10, Managing Director P.K. Mukherjee told Reuters in a telephone interview."Last year, we had a production of 15 million tonnes. This year, we are likely to have volume growth of 25 percent. Plus, you could add 4 million tonnes (from the acquisition)."Mukherjee said the company was hungry for more acquisitions."We are continuously looking for it. Targets are always there," he said, when asked if there would be more acquisitions this year.The Dempo acquisition would result in cost savings for Sesa and was a step towards consolidation in the domestic industry, which lags far behind global players such as Australia’s Rio Tinto and Brazil’s Vale, said A.S. Firoz, an independent strategy consultant for steel and natural resources.Shares in Sesa have risen about 140 percent this year, outpacing the main index that gained about 60 percent.The company, India’s biggest private-sector iron ore mine and a leading exporter, is also looking to expand existing facilities in mineral rich Goa, Mukherjee said.India is the world’s third-biggest supplier of iron ore, exporting half of its 200 million tonne production every year, mostly to China. (Additional reporting by Julie Crust; editing by Jon Loades-Carter and Rupert Winchester)

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