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Cairn India evaluating overseas options: Anil Agarwal

In an exclusive interview with Nayantara Rai of ET Now, Anil..

In an exclusive interview with Nayantara Rai of ET Now, Anil Agarwal, Executive Chairman, Vedanta , explains that he is looking at US companies with high debt.
Despite putting in the highest bid for Electrosteels Steel, Agarwal is not hung up about winning it and says steel is not his sector, iron ore is. He is excited about aluminium, copper, zinc, iron ore, oil and gas .

Edited excerpts:

2017 has turned out to be a stellar year! It was a shining year thanks to the rally that you have seen in base metals. We are beginning 2018 with news about how you and Vedanta are interested in Electrosteels Steel. You are believed to be the frontrunner having submitted at least a Rs 4500-crore bid, if not more. What excited you about Electrosteel?

First of all, thank you very much for inviting me and you have left oil and gas which are rallying.

I was coming to that.

Yes, oil is also rallying. But coming to Electrosteel, we are iron ore producers. We run Sesa Goa. Sesa Goa has served as India's largest iron ore producer and we produce about a million tonne pig iron.

The government is always keen that we do some value addition and we had a very good mine in Jharkhand and we thought it is a reasonable price though. I am not in the steel business. I have no idea whether I am going to win it or not, but aapke muh mein ghee shakkar.

But will you have to add shakkar (sugar) to the deal? There have been reports that you may have to put a sweetener — is that correct or incorrect? Can that even work in this process?

No, we cannot put anything else. We have put a very generous offer.

What would that be? Can you share with us?

I am not allowed to share but what you said the range can be little bit more.

It can be more than Rs 4500 crore.

When are they opening the bids? Is that why you are here?
It is not even 0.1% of our business.

Would it mark the foray of Vedanta into steel? Are you looking at entering the steel business?

I will be looking at only iron ore not steel, but whatever requires for me to sustain myself in iron ore, we will do so because we have to produce steel and that is what we are doing.

So you like Electrosteel because this particular operation in Jharkhand has been the clincher?

Also, because we have a very good mine in Jharkhand and Raghubar Das who is a very good Chief Minister. I am very impressed the way he has been conducting and the way he is inviting industrialists. I come from that area. This state is going to shine and so that is one of the things which prompted me to.

If you look at RBI's distressed asset list or the largest NPAs, a lot of it is from the steel sector. You could literally have your pick. If it is not even Electrosteel, there is Uttam Galva, there is Monnet Ispat, there is Essar Steel, there is Bhushan Steel. You are not interested in any of those?

We are evaluating but I acquired 21% of Anglo American which is De Beers and all this is a much bigger, larger business which I am involved in. Something like this has happened and this is my country and I always look at how I can grow my business and I looked at Electrosteel. I bid for it. There are other assets we are looking at… I am very excited, I am okay.

You are not pursuing it with the same gusto that you pursued with Cairn India or Anglo American is that what you are trying to tell me.
Of course, of course.

So that it is like hogaya so hogaya (If it happens, it will happen) and if it does not happen it does not matter, it is no big deal!

When you are looking at other distressed assets, is it only in steel or you are looking across sectors?
We are evaluating if somewhere we need more power, we will look at some power but that is just to balance our business. We have a huge plan for India. I promise this government I am going to be one of the largest investors and I am in the process of finding out how can I invest more and more. Steel is not my sector and I wish all my colleagues who are in that sector would grow and do very well but I am very excited about aluminium, copper, zinc, iron ore, oil and gas.

It is a natural progression but you are not interested.
No, I bid for an Electrosteel and we are looking…

So you want more than the mine, but you do want to enter the steel business?
Yes, yes.

Nayantara Will you look at global acquisitions or steel companies?
No. No. I do not have that speciality.

You have mentioned all the base metals that you are in and I began that interview by saying how all the base metals are shining. For example, look at zinc. The prices are at a 10-year high. Are you reworking your plans to capitalise on this kind of a rally? What does it mean for a company like Vedanta?

This will put India into the top position. India never used to produce zinc, we were always huge importers of zinc and with the zinc we are going to produce almost 1000 ton silver which is the third largest in the world. In zinc, we are the largest producer and I am very excited about the scale that will bring to India. There is no mine available, there is no resource available for zinc. More and more steel has to be galvanised, people are convinced that steel should not be sold and used naked, it has to be galvanised. I am very excited about this.

Are you looking to add capacity because as you said there is a big problem with the mines?

Yes, we are exploring, we are investing left, right and centre and this government has also supported us very well. We are doing a lot of exploration and we will be looking to expand the capacity to 1.2 million ton.

You said you promised the Modi government to be one of India's largest investors. How much is it at the group level that you are looking at?
I am looking at about Rs 50000 crore in three years' time.

Rs 50000 crore in three years and this will be across all your businesses, including oil and gas?

We are seeing a rally in crude oil prices. How does the prospects of Cairn India now change? Will Cairn India, for example, now be investing a lot more?

First of all, I am very keen that like zinc, India should come to the forefront of producing oil and gas. It is a hub. We have one of the largest reserves. Also we have sweet crude and sulphur free crude. Entire West Asia has sulphur crude. So I am very excited. India imports almost 83-84% of crude. That is very unfortunate. Our hard-earned money goes into the oil.

You contribute 25% literally of the production?

But 25% of the 10% or 12%. I want India to produce 50% of their requirement and we have that potential and this government, the way I saw the new contract which has come. It was a very small contract. It is so clean, no approvals are required. Only some environmental approvals are required. If you look at our contract, it is full of approvals. 80% of our time goes into approvals. I am very happy that this government are looking to ease of doing business. They have also come out with an open acreage policy.

Open acreage policy, it is a big move…

Yes, yes very nice and still the foreign companies are not looking at India. In the last bid also I found so. We have to do a lot of work. This is the sector which is the biggest revenue spinner, 80% goes to the government. So simplifying the policy, the government said we will get 10-year extended but they want 10% increased royalty. We are saying the original contract says that extension will be done on the same basis. It is a small thing. The government should not be revenue minded, government should be more production minded.

You have challenged that..?

Yes, of course, we have to do that. It is a democratic country. We have to do that but in general we have to be very simple and the government has to be very simple. Oil and gas is a huge area and I can say with authority that we have tremendous scope and all our entrepreneurs please look at exploration of oil and gas. It is one of the best markets in the world.

You are saying it is one of the biggest markets in the world, it is one of the largest as well. You are also a global entrepreneur. While Cairn India has the expertise, would you for example look at partnering with any of the global majors especially now that you will have an open acreage policy?

I am the major one. The whole world knows the kind of talent we have. Cairn India has put a 6000-mile pipelines. If you see the maximum petroleum engineers in the world in our size is in Cairn India. I do not need to have a partner. I have raised $33 billion overseas . I have the credibility to raise another $50 billion. So when the opportunity comes. we can always go to anybody but at the moment we do not need to go and partner big boys.

So will you on your own be planning something big as far as this open acreage policy goes?
We will be looking at it. At the same time, I have always said that it is very advantageous that whoever has discovered the fields — government or ONGC — should bring in a partner. This will accelerate production in the country.

You said you are the largest. Would you say you are larger than the Reliance Industries and BP combined?
No, no there is no question. We are not in race.

But you just said you are the largest…
No, I said in oil and gas.

Yes, they are also in oil and gas — RIL and BP.
Reliance, rather Dhirubhai is our role model is not it. He has been someone we always look up to. There is enough water in the well for everybody to live.

And to coexist.

Because the market is so large. But crude inching back towards $70 a barrel and obviously the central exchequer is not too happy about it. We have got the budget round the corner. There is a clamour to bring all of these products under the GST. As one of the oil and gas majors, what would be your wish list for the Budget?

In Mrs Gandhi's time, when income tax was 90%, there was hardly any revenue. The moment it was reduced to 50%, 40%, the revenue started coming. Same thing with the oil and gas. The cess is very high.


20% is too high. If they bring it down to 8%, I guarantee their income will go up three times. The more they reduce, more will the income be because production will be more.

So you are saying that the 20% cess is actually hurting investments and stopping exploration?

Absolutely, absolutely.

We have talked about zinc but you are in a lot of other base metals as well and you are enjoying a strong rally. Does that mean you are looking to increase capacity across businesses, across all the metals?

India imports almost $400 billion worth of goods. We understand India, we are son of the soil and so we will be enhancing our capacity in copper, we will be balancing our capacity in aluminium. So far, we are producing two million tonnes. We are going to produce three million tonnes of aluminium. I am going all out for oil for my country. I want to produce 500,000 barrels…

Yes, I remember. You had written that letter to Dr Manmohan Singh?

I want show to the world that Hindustan Zinc can produce so much. I am very determined, we are bringing in a lot of experts and I am looking forward to invest…

You are bringing in experts. What does that mean?

We hire top class exploration people.

Can you share the new names?

There are so many. There is no brand. Experts mean people who have worked very deep in exploration, in production.

We are coming back from $35-40 a barrel price for crude to almost at $70. We are at a three-year high. Do you think we are going to go back to $100 soon or do you think this is where it is going to stay for a while? Is this good enough to incentivise and bring back capex?

That is most important. Apart from one clearance which is environmental clearance there should not be any clearance. All should be self-certification and it has to be shown, not only in oil and gas, even in copper. We have big reserves of copper but we are importing 100% copper. It is very unfortunate.

Millions of jobs are being created outside India for gold, for copper, for oil and gas. Why cannot we have those jobs here? We have to make those policies.

India is the place of entrepreneurs. Two types of things are going on; in socialist countries, the government runs the business — whether it is China or Russia. In democratic countries, the entrepreneurs run the business. That is what our government Prime Minister Narendra Modi also wanted. But in India there is khichdi (hotch-potch) . For business, if people have to go to the government, they take the government along with them because they are not comfortable. Neither the government nor we are comfortable.It is very important that chemistry has to be there because this country will grow with private investment.

That has been the missing link along with earnings when we talk about the Indian economy with NPAs being a back hole as well. What I was trying to get at was do you think crude prices will stay at around $70 or would they go back? There are a lot of conspiracy theories…

It will move between $60 and $80, that is what I hear.

And what about base metals? For example, zinc prices are at 10-year high. What are you as the big boss at Vedanta pencilling in? Is the kind of rally you are seeing in base metals, sustainable?

It is sustainable. I still feel price will increase 10% more.

In zinc?

In zinc, in copper, in aluminium. But it is very important for India to produce these metals in India to eradicate poverty, to create jobs.

We must use the Natural resources for our own advantage?

In a sustainable manner.

You have pioneered that. You also gave an example. A block was thrown away by Shell and you at Cairn India has turned that around. I am talking about the Rajasthan field. You also alluded to Hindustan Zinc. Where do all the talks of the residual stake sale go when it comes to Hindustan Zinc and Balco?
That is what I am saying. The government has to be comfortable with private people/

I know this is in the Supreme Court but are negotiations on?
No. It is a question of the country growing with the private sector, with the entrepreneur. To resolve issues we have to go to the government and the government has to be comfortable. The public sector has a very good access. This 25% residual stake ball is not in my court. Whenever the government decides, we will come forward.

Because you have made offers in the past and you have publicised what those offers were. So no negotiation is on right now?
No, no.

And they are not interested right now either?

No, we have met the officials and they have said at the appropriate time they will look into it.

Last year, you rewarded the shareholders with a handsome dividend and the government also got a record dividend. What is in the works this time around, especially with zinc at 10-year highs?

Yes, whatever the dividend is my company share price, I have always had a policy to give more and more dividend. You will find Vedanta will be the very good dividend paying company.

I was talking about Hindustan Zinc?

Whether it is Hindustan Zinc or Vedanta, anything.

Last year you shattered records with that big dividend. So, even if not that big, can we expect…

We have not talked, when the situation comes to decide the dividend, we will be looking at it very positively.

We are talking for the first time since the acquisition of Anglo American. You have a significant stake, you have a say now in the company, what are the plans?

Yes, this is a company, we have lot of other business also in South Africa. Yesterday the chairman or their team came to meet me, Stuart Chambers and everybody came to meet me and they told me what are the plans and I have also shared with them that the first diamond produced and best diamond produced was in India. So why dont you produce diamond in India? Then you can distribute all the diamond. Also, you produce the best of coal and why don't we look at the coal? I am very keen because they have the technology and they are big boys..
My intention would be how to attract them in India and if they are comfortable and they can do business we will handhold them and make sure the Indian natural resources open up with their help. Also, they have a huge plan because they are opening one of the largest copper mines in Peru. They have an iron ore mine in Brazil doing very well. In South Africa, platinum, coal and iron ore is doing very well. So very exciting times. You will see the Anglo share price has rallied 50%.

But do you think Anglo would also be concerned seeing Rio Tinto's case? They have exited the company and they were supposed to be in the diamond business here?

That is very unfortunate, I was talking to Rio Tinto, CEO who has invested and he says there is very good prospect in MP but he was very disturbed with the bureaucracy. He said we love this diamond mine. India has a prospective, we held this for a couple of years but we are exiting because file goes from one table to second table and second table to third table.

Your vision was to create the BHP Billiton's and the Rio Tinto of India. That is what you have said when you were acquiring Cairn India. Have you realised your dream?

It is going to come true because all resource companies have their origin. For example, take BP. BP only produce 10% oil in England and 90% outside England but they are so proud that BP is an English company. Same thing with Vedanta.

But will Cairn India start overseas exploration?

We will be doing business all over. We are one of the largest producers of copper in Zambia. We are one of the largest producers of zinc in Namibia in South Africa.

But will the oil and gas business go overseas?

Does not matter. For us, wherever we can find is feasible. I am a very single asset person but as and when the opportunity comes, we will look at that.

So, Cairn India's evaluating overseas options?

No, there are three or four companies in the US which are producing 30,000-40,000 barrels. This company has a lot of debt, banks are converting the debt into liquidity. So, we are evaluating not only because we also need a technology because what technology they have we do not have. Our boys will learn it if we have some overseas unit. We are exploring but there is nothing that I can share with you.

Clearly you have got your hands full whether it is to acquire a bankrupt company in the US in the oil and gas business or Electrosteels Steel here.

Those companies are not bankrupt because an oil and gas company hardly get bankrupt, but they are a high debt company.

High debt so that they are converting into equity…

Yes, yes.

Original Article


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