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Vedanta acquires Electrosteel Steels in Rs5,320cr deal

This acquisition marks Vedanta’s entry into the steel segment Under the terms of its resolution plan for Electrosteel Steels, Vedanta would be acquiring a 90% stake in the company. As part of the resolution plan, Vedanta would be paying Rs5,320cr to acquire Electrosteel Steels through a mix of debt and equity. As part of the resolution plan, Vedanta will subscribe for the share capital of Electrosteel for an amount of Rs1,805cr and Rs3,515cr by way of debt. As a result of the implementation of the Resolution Plan, Vedanta would hold ~90% of the paid up share capital of Electrosteel (the “Transaction”) with the remaining 10% consisting of Electrosteel’s existing shareholders and the financial creditors. The funds received by Electrosteel would be used to settle the debts owed to the existing creditors of Electrosteel, by payment of Rs5,320cr. The debt outstanding for Electrosteel Steels is ~Rs13,000cr, this implies a 59% haircut for lenders.

The management of Vedanta believes that this is a positive development, as it would allow for forward integration of its existing iron ore mines into steel making. The management also believes that the acquisition will not have much impact on earnings for FY19E and that benefits from the acquisition would reflect after that period.