Vedanta Resources, the $ 13-billion metals and mining giant, is embroiled in a controversy, with its petroleum arm, Cairn India, extending a $ 1.25-billion loan to a subsidiary of sister concern Sesa Sterlite. Minority shareholders are complaining the company didn’t make proper disclosure and Cairn could maximise investor returns by paying dividends, rather than extending a loan at a “lower” rate of three per cent more than the Libor. Following Cairn’s stock shedding 10 per cent since the loan announcement on July 23, Vedanta Resources CEO Tom Albanese speaks to Sudheer Pal Singh about the issue. Edited excerpts:
Will you set the record straight on the controversy over the Cairn loan?
Board members of Cairn India who were associated with Vedanta or Sesa Sterlite weren’t part of this decision. It was decided this (extending the loan) was a better return on the funds Cairn had, over and above what was needed for operations. The decision was taken at the board level and was consistent with the rules and regulations of corporate governance. Communication to the market on the loan had taken place in the first normal communication to the investor when the loan was given, during the quarterly results. So, the communication took place during our normal quarterly production and earnings results call. The normal period when we report actively during the quarter is the quarterly calls. That is when this information was announced.
Was it decided to extend the loan before October 1, when the new Companies Act comes into effect, making it mandatory for companies to make formal disclosures of such transactions to shareholders?
That was not the case.
What is the status of Vedanta’s proposed buyout of the government’s 25 per cent stake in Hindustan Zinc? Will you participate in the auction of the stake, as decided by the government?
The process is well advertised in the public domain. When the government is ready to do something, we will certainly be there. We see constructive efforts by the government, including appointing a valuer. We expect the next Budget to have a fairly large amount of money from disinvestment. The Hindustan Zinc and Balco transactions could account for an important part of the total disinvestment budget. It is also well recognised that it is not the first divestment in the company; it follows the divestment about 10 years ago. We look forward to participating in the auction for the stake sale. I think auction is one of the best ways because the ultimate disinvestment will be seen as done in a purely transparent way, which reflects the market values of those assets.
The delay in resumption of mining in Goa is impacting your volumes. Do you see the issue being resolved in the near future?
The Goa government has to take the next important step, in terms of determining the mineral policy in the state and addressing the issue of deemed lease extensions pending since 2007. Once that happens, we will hopefully see the process of resumption of mining. The government has said it intends to tackle this in August. We look forward to that.
Based on your interactions with the new government, what is your assessment of its functioning? Do you see an economic revival in the making?
I see the new government as job-friendly. India will have a huge number of people entering the working age by 2025. This will be a period of economic boom and higher GDP (gross domestic product) growth. But this also creates a major challenge for the government. The new government is recognising it has to create avenues for job creation. There will be revitalisation of Indian manufacturing and it has to explore and mine more minerals for that. The new government does not seem to be short-circuiting the due process of policy-making. It seems ready to take proper and bold steps. After the elections, I have seen a lot of positive recognition of India in the international, as well as the domestic market. The overall sense of optimism of an average Indian in the economy is much higher now than a year ago.
The previous mining Bill has lapsed and the new government is revising it. If the new Bill, too, has benefit-sharing provisions, will it make the investment climate less conducive for businesses such as yours?
Already, it is not an environment that is conducive to mineral investment. If the government adds more taxes or distribution, the sector will become less attractive for investment. The government has to look at the issue holistically to decide what should be redirected to the community level. Globally, mining is heavily regulated. My view of Indian mining during the past 5-10 years is it has a strong regulatory environment, but without any enforcement. This led to problems that were so large that the only regulatory option was the blunt force of mining bans.