Agarwal’s Volcan machinations may put esprit in Anglo rating

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Anil Agarwal, Vedanta executive chairman

A REPORT by LiveMint, an Indian publication, quotes two unnamed sources as saying a decision by Volcan Investments to buy the shares it doesn’t already own in Vedanta, a UK-listed mining group, is the first of a three stage plan to extract the South African assets out of Anglo American.

Volcan is the family business of Anil Agarwal, who is the founder and chairman of Vedanta. He raised eyebrows last year by taking voting rights in Anglo American to a shade above 19%, the second tranche of which on the day Anglo was celebrating its Centenary on the lawns of Vegelegen, a wine farm.

As the voting stake is by dint of shares loaned from Anglo shareholders, nobody believes Agarwal’s official explanation that his interest in Anglo is purely for investment purposes.

Hence, the temptation is to invest belief in the LiveMint narrative that once Vedanta is bought and delisted from London, it will be merged with Volcan, simplifying the structure ahead of a Vedanta bid for Anglo’s coal and iron ore mines, and even De Beers (but not Anglo American Platinum). The enlarged Vedanta would then be re-listed in London.

Some don’t read that too far.

Investec Securities hedged its opinion on the matter saying the Volcan bid for Vedanta represented opportunism but not Agarwal imperialism – “necessarily”.  (In fact, the offer for Vedanta is coming at too cheap a price for Volcan it would seem because Vedanta minority shareholders are threatening to turn Volcan’s offer down).

At least the speculation will add some esprit into Anglo’s share price, said RBC Capital Markets. “With Rio Tinto and BHP trading on a 6.3x and 5.4x, there is clear rerating potential for an ex-South African Anglo American should a transaction as proposed develop,” it said in a report.

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