Vedanta is seeking initial bids for sale of its troubled Tuticorin-based smelter, which has been shut since mid-2018.
Anil Agarwal led-Vedanta surprised the street with the announcement in newspapers seeking initial bids for sale of its troubled Tuticorin-based smelter, which has been shut since mid-2018.
On June 20, shares of the company plunged to 52-week lows of Rs 221.70 on the BSE, almost 16 percent down from the previous close. It later closed at Rs 230.25 a share, down over 12 percent.
Later in the day, the company informed the bourses that the sale is only at an “exploratory stage”.
The deal could have potentially enthused the market — with the upswing in commodity prices, a unit like this could have fetched a handsome valuation. But the fact that the unit has been shut and there is no clarity on when it may restart has triggered scepticism over its success.
In April, Vedanta Chairman Agarwal had told Moneycontrol in an interview that the Tuticorin/Thoothukudi matter had gone to court and he hoped that the judiciary would move fast. Then what has changed in less than two months that made the company decide to exit the project? Moneycontrol asked this question, and a few more, to the company, but has not yet received a response.
The announcement has raised quite a few questions, leaving industry and street confused. We look at a few of these questions:
Why now?
Sterlite Copper, which at its peak annual production of more than 400,000 tonnes, accounted for 40 percent of India’s copper output, employed 5,000 people directly, and another 25,000 indirectly.
In March 2018, the plant was shut for maintenance pending renewal of licence. Residents and environmental activists, who had been for long demanding a shutdown of the copper smelter over concerns of air and water pollution, protested against the expansion plan. What followed was probably among the deadliest environmental protests in India in a decade. Police fired on a gathering of over 20,000 protesters near the Thoothukudi Collectorate, killing 13 people.
On May 28, 2018, the Tamil Nadu government directed the Tamil Nadu Pollution Control Board (TNPCB) to seal the copper smelter plant. Since then the plant has been shut, except an exemption given by the Supreme Court in August 2021 that allowed the unit to manufacture medical oxygen amid its shortage during the second wave of the COVID-19 pandemic in the country.
The matter is currently sub judice before the Supreme Court. So, what’s the rush to sell it now?
Was the decision taken by the Board?
The announcement from Vedanta became public through a newspaper advertisement on June 20. At around 4:53 pm the same day, a BSE disclosure stated that the exchange has sought clarification on the matter. In response, Vedanta said at 7:34 pm, “In this regard, please note that the captioned matter is only at an exploratory stage and any such final proposal will only be carried after obtaining necessary approvals and in compliance with all applicable laws, including, making any disclosures as may be deemed necessary under Regulation 30 of SEBI (LODR) Regulations, 2015.”
JN Gupta, former executive director of the Securities and Exchange Board of India (SEBI) and Managing Director of Stakeholders Empowerment Services, a proxy advisory firm, told Moneycontrol, “If the board is required to disclose a demerger decision, then it is all the more important that a decision for sale of a unit is taken by the Board and the exchanges and shareholders are informed. That has not happened in this case. And the timing is intriguing as the hearing of this case is in the final leg at the SC.”
Was there a Board meeting to approve the proposed sale? Why was the decision not communicated to the bourses?
Who will buy it?
The copper unit has been shut for over four years and when it will get operational hinges on the court verdict.
Earlier this month, media reports said that members of the Anti-Sterlite People’s Movement are seeking reinvestigation into the police firing at the site after 101 protesters were charge-sheeted by the CBI in the case.
The ad from Vedanta said that interested and financially competent parties may submit Expression of Interest (EoI) along with company profile and other relevant credentials by 6 pm on July 4.
Amid the legal battle and the continued protests, who could be interested in buying the plant? And at what valuation?
How and when will the plant be operational?
In a statement, Vedanta said, “The Tuticorin plant is a national asset which has been catering to 40 percent of our national demand for copper, and has played an integral role in India’s self-sufficiency in copper. In the best interest of the country and the people of Tamil Nadu, we are exploring options to make sure that the plant and the assets are best utilised to meet the growing demand of the nation.”
The company refers to best utilisation of the plant, but it is not clear how the sale could potentially make that happen. Even if the deal was to go through, would the protestors allow the new owners to operate it? Even if the protesters allow the new owners to operate it, how long will it take to get a plant that has not been operational for over four years to be up and running?
Does this signal a change of strategy for Vedanta?
There have been quite a few flip-flops on strategy by the Vedanta management in the past.
The company initiated a plan to delist but after lukewarm response from investors, it withdrew the plan in October 2020.
Then in November 2021, the group announced plans to restructure the group that would have entailed demerger and listing of the aluminium, iron and steel, and oil and gas businesses as standalone entities. This plan too, was called off in February 2022, saying the Board found its present structure to be “optimal”.
All eyes will now be on Vedanta to see if it goes through with the sale of the Tuticorin plant, and whether this could signal a change in strategy.
“Out of 20 plants, the ones in Goa and Tuticorin are not working. Together, they form about 6-7 percent of our whole business,” Agarwal had told Moneycontrol in April.
If the company is keen to exit Tuticorin, what next for its Goa operations?
