FIs may back Sterlite offer

NEW DELHI, FEB 22: The financial institutions are likely to support Sterlite's conditional offer for Indal. Top brass in the finance ministr...

NEW DELHI, FEB 22: The financial institutions are likely to support Sterlite’s conditional offer for Indal. Top brass in the finance ministry which has heard out both Sterlite and Indal is understood to be swaying towards Sterlite, senior officials in the ministry said.

The finance ministry is of the opinion that Sterlite has come forward and played with a straight bat. Hence its intentions should not be suspected.

Presenting its case to the ministry, Sterlite has argued that it does not wish to make investments in new projects at the moment. It has substantial cash reserves at its disposal which it wants to invest. And it does not want to do the investment "through the suspect route of investment companies".

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With white money it wishes to make an investment in Indal according to the law.The ministry is of the opinion that if the institutions adopt a neutral stance and do not come forward to book profits by accepting an offer on premium, the entire episode will get coloured as a takeover attempt. It isnot comfortable in acting in a market unfriendly manner. It is also against an “investment offer” getting coloured as a “takeover attempt”.

Both the companies, Sterlite and Indal have been lobbying with the finance ministry to win the institutions over to their side. Support of the institutions has assumed greater importance since the Securities and Exchange Board of India raised the floor of the conditional offer to 20 per cent two days after Sterlite announced its intentions to make a 10 per cent offer. If the institutions do not accept Sterlite’s lucrative public offer, the offer will fall through as Indal has very little floating stock. About 34 per cent of Indal’s equity is with its Canadian joint venture partner, Alcan, and about 36 per cent is with various financial institutions.

Corporate sources indicate that Indal’s holding pattern forced Sterlite’s hand into making a public offer. Apparently, Sterlite’s preliminary assessment had indicated that mopping up Indal’s floating stock would beimpossible as large chunks are locked up with parties close to Tapan Mitra, managing director, Indal. Hence, the only way of making an entry into the company was to stick to a modus operandi which is completely over board. The option of mopping up floating stock through Sterlite’s investment companies could not have yielded anything they explain.

While the protagonists in the drama are in Mumbai, the final denouement will be decided at North Block in the capital. In which context Montek Singh Ahluwalia’s recent visit to Mumbai has assumed significance. Ahluwalia is believed to have had extensive discussions on the issue with the Sebi chairman in Mumbai. While Sterlite is banking on the correctness of its approach to get it through because if its offer is stumped it will set a bad precedent. Indal is setting its hopes on the clout of its chairman S M Datta. Tapan Mitra is also understood to have approached the CII where Indal is an active member for help at North Block.