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Gold Digger

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One sunny morning in the summer of 2003, brian gilberton, the former chief executive of Australian metals giant BHP Billiton and an avid cyclist, rolled out his bicycle from his Oxford home for a ride to London. As he left, a dark, stocky man joined him on his own bicycle. Gilberton recognised him instantly.

The man was Anil Agarwal, a metals trader-turned-entrepreneur from Bihar who was preparing to list a new holding company, Vedanta Resources (named after his mother), on the London Stock Exchange. An LSE-listed company would give the bucolic businessman respectability and international acclaim. Agarwal knew that the globally well-known Gilberton — who was not convinced about the capabilities of Vedanta — could make the difference between success and failure of the issue.

Agarwal wouldn’t reveal the conversation during the ride, but by the time they biked from the world’s most famous centre of learning to the most important financial hub, Gilberton was a convert. He joined Vedanta as non-executive chairman for £2 million a year and sold the $825-million issue.



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“Nobody believed me when I took Vedanta to LSE,” says Agarwal. “Many were scared to put money in a company with a promoter with little education. My bio-data was scanned and auditors did 150 due diligence checks.” Gilberton was fired three months later when it transpired that he was advising a Russian rival, but with Vedanta’s listing, Anil Agarwal arrived on the world stage in style: enigmatic and controversial.
His relentless pursuit of the right people brought in P. Chidambaram (before he became India’s finance minister), former Indian ambassador to the US, Naresh Chandra, and former KPMG chairman, Michael Fowle, to the board of Sterlite Industries.

Gutsy Rise
Anil Agarwal’s story is one of tenacity, opportunism, luck and transition. From a trader to an industrialist; from copper to steel, power and zinc. And from riding a Lambretta scooter in the late 1970s to criss-crossing the globe in his company’s eight-seater corporate jet. But though he lives in a $70-million mansion in London, he says, “I do not enjoy luxury.”

He calls himself a visionary, though he comes across more as a trader with the mind of a private equity investor. He is hated by environmentalists, jostles with regulators and is disliked by some investors. His companies’ offer documents are thick with lists of litigations and regulatory proceedings. Yet, his business thrives. Like a tenacious bull, he has muscled his way into eminence among India’s corporate czars. Rather than building businesses from scratch such as the Ambanis or Tatas, Agarwal has built his empire the L.N. Mittal way — acquiring government assets and growing them.

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Revenues of Vedanta Resources have shot up from $1 billion to $5 billion in four years, making him one of India’s largest group by revenues and market cap. Group companies Balco, Sterlite and Hindustan Zinc have now aimed for 20 per cent of the world’s production of aluminium, copper and zinc in the next 10 years. “My goal is not to export any metal from India,” he says. “Instead, it should be consumed within the country.”

His romance with metals began in the late 1970s when he started life as a copper trader. Once, a well wisher, who declined his offer to join the Sterlite board, urged him to buy oilfields. He refused. “I understand the algorithm of metals, not oil,” Agarwal told him.

In the early 1980s, Agarwal persuaded an apprehensive Syndicate Bank to lend him Rs 60 lakh to buy a jelly-filled cable-making company owned by the King of Nepal. The shrewd trader was actually interested in the large stock of copper at the company’s Ghatkopar factory. Immediately after buying the company, he sold off the copper at an unbelievable Rs 2 crore, though he insists he made only Rs 20 lakh. He paid back a surprised Syndicate Bank within two weeks. That company later became his flagship, Sterlite Industries. Such payment history has continued to this day. Agarwal’s companies have never defaulted on a loan.

Agarwal has an uncanny eye for value in seemingly bad assets. In 2006, he paid Rs 550 crore for Balco when nobody would touch it. Later, he picked up Hindustan Zinc for Rs 600 crore, paying Rs 40.50 per share when the metal’s prices were rock bottom, but today the company’s share trades Rs 604. His detractors believed he paid a high price but today Agarwal makes a margin of 70 per cent on zinc, primarily because the company has a captive power plant and mines that can feed the smelters for the next 35 years. “You have to give a very strong reason to discourage him,” says a banker who worked with Agarwal on several deals.

Until he bid for Sesa Goa, which owns the world’s second-largest iron-ore mine and produced metallurgical coke, Agarwal was only into non-ferrous metals. But he scooped up Sesa Goa for $981-million from under the noses of steel king L.N. Mittal, Rio Tinto, BHP Billiton and JSW Steel. Again, many were of the view that he paid a high price but it laid the foundation for his new business — steel.

“I believe owners of iron ore are going to rule the industry,” Ratan Tata, whom Anil Agarwal regards in awe, had predicted two years ago. “They will be the OPEC of the steel industry.”

Agarwal hasn’t always been successful as a takeover artist. He failed to turn around India Foils, a small aluminium foil maker in Kolkata. After keeping it in his fold for over three years, he has put it on the block. “We are not gods and so we had to make mistakes,” he explains. Says Tarun Jain, his trusted confidant, “India Foils was one such mistake and it contributed just 5 per cent to our turnover.”

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HEAVY TROUBLE: Recently, the Supreme
Court stopped Vedanta from mining in
Orissa on grounds of environmental damage
and displacing tribals

Minimum Exposure
Lately, Agarwal has realised that Vedanta has opened up too many fronts in the metals business. That the cyclical nature of business and global consolidation could be suicidal. So, his recent moves have been aimed at derisking. For instance, Sesa Goa, which can produce 207 million tonnes of iron ore to make 6 mt of iron and steel for 50 years, will make steel for the domestic market. Since he is not an expert in steel, he is trying to rope in a partner that would also be a customer for Sesa Goa’s iron ore.

Likewise, he is scouting for captive customers for aluminium, zinc and copper. At a vendor meet in January titled ‘Elements’, Agarwal ended up signing agreements with close to 100 companies to provide him with logistics support, raw materials, engineering equipment and services, and creating entrepreneurs who would make products using raw material supplied from his factories.

Take Vijay P. Karia, a small-time entrepreneur who supplies copper cables for Sterlite’s smelter in Orissa. He also buys copper and aluminium from Sterlite to make copper cables. Agarwal’s strategy is to get Karia closer to his plant. “It is a win-win for both of us,” he says. By outsourcing his future requirements, Agarwal is hedging against cost inflation and also tying up buyers for his products. For entrepreneurs who have ideas but are short on money, Agarwal is keen to fund them.

Historically, he has been averse to debts. So he has mostly raised equity from different markets. Vedanta Resources raised $825 million from London, Sterlite Industries $1.75 billion from the US and Vedanta Power is looking to raise equity from India. Sources say talks have been initiated with PE investors for a pre-placement by hawking a minority stake and benchmarking Vedanta Power. Company sources say it wants to raise substantial money to meet its Rs 40,000-crore capital expenditure plan.

Investors haven’t always been happy, though. Agarwal attracted investor ire when he sent out cheques to Sterlite shareholders through a forced buy-back which, though widely perceived as illegal, was not. “The compulsory buy-back was the blackest spot in his corporate career,” says a finance expert and Agarwal’s confidant for several years. Agarwal says it is history now. “I will not do anything that will not benefit society.”

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THE RIGHT BUY: Anil Agarwal has an eye for
seemingly bad assets. He bought Balco for
Rs 550 crore at a time when nobody would
touch it

Mellowed Mettle
Agarwal often attracts fame for the wrong reasons. A Norwegian sovereign fund sold its investment in Vedanta saying it could not support a company whose projects in Orissa would harm the environment and displace tribals. Following the announcement, the Supreme Court stopped the company from continuing mining in Niyamgiri Bauxite mines. Instead, the apex court allowed the Indian company, Sterlite, to continue feeding the smelter. Agarwal says the Norwegians are envious of India’s success.

A report released last week by the Centre for Science and Environment says environment activists travelled to London from Orissa to confront Agarwal on his company’s human and environmental rights record at its AGM in August 2006. He denied any violations and said his company would accept any decisions in court.

Agarwal says he is more conscious of protecting the environment now. “At our Kalahandi bauxite mines in Orissa, locals are protecting us because we provided livelihood to more than 1,000 people and offered them a decent life.” He says he would convert Sesa Goa’s mines into greenery once he finishes with them and would provide livelihood to locals.





His recent turn to spirituality and Vedas has also mellowed Agarwal. At his newly-built five-storeyed corporate office in Mumbai, a sculpture of a coconut in a kalash (a Hindu symbol of a good omen) welcomes you. On the ground floor are 12 visiting rooms named after the names from the Vedas, Mahabharat and Ramayana. The walls in the visiting rooms are replete with paintings of a cosmic universe. And unlike his previous office near the Gateway of India, which paraded the group’s copper lineage, the new office reflects his new love for steel with a modern steel and glass finish.

Those who know Agarwal say the spiritual leaning has come about gradually. He recites the Vedas every morning and when in Mumbai rarely misses an opportunity to visit the Siddhivinayak temple. An expert dholak player, he once went into a trance and tears flowed from his eyes while playing at a temple, says a relative who witnessed the incident.

A year ago, on a close friend’s advice, Agarwal set up the 10,000-acre Vedanta University in Orissa, dedicated to his father Dwaraka Prasad Agarwal. The billion-dollar institute will have the Bay of Bengal on one side and the Mahanandi River on the other — an ideal environment for research scholars to work on his pet subjects like development of alternative fuels.

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Unpredictable Businessman
Mellowed or not, Agarwal’s unpredictability is still feared by rivals. Though he has largely remained a local player, in the metals world, he is known as an aggressive strategist with global ambitions. In the late 1990s, he approached Canadian aluminium giant Alcan with a proposal to buy it out from its Indian arm Indal. After Alcan spurned his advances, he made a hostile bid for the company. The bid shook up the Indian corporate firmament, which had never witnessed such drama before. To avoid the ignominy of being upstaged, Alcan sold the company to the Birlas, a name more acceptable to the Canadians than the upstart Agarwal.

Last year, rumours that the wily businessman had teamed up with Australian miner Rio Tinto to mount a hostile bid on Aditya Birla Group’s Hindalco Industries had Chairman Kumar Mangalam Birla hastily shoring up his holdings in Hindalco from 17 per cent to 28 per cent by buying stock from the GDR market. Agarwal denies he planned to take over Hindalco.





“We never thought about it,” he says. “We plan to share technology and source raw materials.” But Birla officials are uncomfortable about a tie-up. Perhaps, because both are eyeing state-owned National Aluminium Company (Nalco), which makes the world’s cheapest alumina. Birla had shelved its plan to build a Rs 10,000-crore alumina project in Orissa when it heard that Nalco was on the block. But Agarwal, ever the calculated risk-taker, went ahead with his capacity expansion, forcing Birla to revive the alumina project after the government withdrew Nalco from its sale list. But by then Birla had lost several precious years and an opportunity to make money when aluminium prices went through the roof. Vedanta gained from the spiral.

But mention corporate battles and Agarwal switches to Vedas. “This is a cosmic world,” he says. After one-two rounds, there will be similar opportunities, says Agarwal, in response to a question on his proposal to buy the government’s stake in Bharat Aluminium Company and Hindustan Zinc, which is still pending in court even as he has the cheques ready.





Heir Not So Apparent
A top priority for any businessman is to find a successor. At 54, Agarwal is at a crossroads. Any successor, he says, must prove his mettle at Vedanta for a decade. His 30-year-old son Agnivesh, sources say, is yet to show any interest in his metals empire. But people familiar with him say he is grooming his nephew Prateek Agarwal, a Wharton graduate who is finishing a post graduate course at London School of Economics. Some Agarwal watchers, however, argue he may never need a successor. They say he has structured the group like a pyramid with holding company Vedanta Resources at the top listed in London, one of the world’s largest financial centres, to keep it “sale-ready” at all times.

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(Businessworld Issue 05 - 11 February 2008)


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