Cairn India Holdings, the overseas arm of Vedanta, has decided to exit the investment it made in Anglo American by buying a stake from its parent trust Volcan Investments for $200 million, Vedanta said on Friday. The exit, which is ahead of the schedule, has fetched Cairn India $100 million profit as share prices of Anglo American doubled since the investment was entered into in December last year.
Cairn India bought 2% in Anglo American from Volcan — a family trust of promoter Anil Agarwal which holds 19% in Anglo American — through a ‘structured investment’. The investment was due to mature partly in April 2020 and October 2020. Agarwal (through Volcan) in March 2017, started buying into Anglo American through mandatory convertible bonds and by September the same year, he became the largest shareholder of the company with around 20% share. He has, however, decided to exercise a call option and take profits which is around $500 million.
The deal will be settled on August 12, 2019 and Cairn India will receive its share of proceeds on August 13, 2019.
“We are pleased this structured investment has achieved a superior return for CIHL, as we expected when it was entered into. Our strategy continues to be to focus on our existing businesses, where we believe that there are significant opportunities to unlock their full potential. The unwinding reflects our disciplined approach to treasury management and capital allocation together with our commitment at all times to act in the interests of all shareholders,” said Srinivasan Venkatakrishnan, CEO of Vedanta.
Venkatakrishnan added that the company will not enter into such related-party investments in the future and will focus on its core businesses to generate high returns for shareholders. The investment by Cairn India had received flak from rating agencies and experts who had termed the deal imprudent, though the company maintained that the decision was taken after its board gave approval. With the exit, Vedanta will have no exposure to Anglo American, said Venkatakrishnan.