Vedanta Shares Fall On Several Factors; Rights Issue A Concern

Shares in U.K-listed, India-focused Vedanta Resources PLC (VED.LN) fell more than 4% Thursday with analysts blaming a combination of factors, including that the company is prepared to sell equity to partly fund a proposed acquisition of Cairn India Ltd (532792.BY) if needed.

Shares in the FTSE-100 miner fell as much as 5% to a five-month low before paring back some of its losses later in the day. At 1532 GMT, Vedanta's shares were down 89 pence or 4% at 2131p.

Vedanta aims to purchase a 58.5% stake in Cairn India for $9.4 billion and already secured an 18.5% stake through its Sesa Goa Ltd (500295.BY) unit, which acquired an 8.1% stake via an open offer and a 10.4% stake from Malaysia's Petroliam Nasional Berhad, or Petronas. It is now waiting for government approval to complete the purchase of a 40% stake in Cairn India from U.K.-listed Cairn Energy PLC (CNE.LN).

The company's chief financial officer DD Jalan told analysts in a conference call that Vedanta has secured $6 billion in loans to finance the Cairn India acquisition. The financing for the purchase includes $3.5 billion in bank loans, a $1.5 billion loan collateralized by a promise to issue bonds, and a $1 billion loan collateralized by a promise to sell shares if needed.

Jalan told analysts that the $1 billion bridge loan to equity could be covered with proceeds from "primary and secondary offerings" from Vedanta and Konkola Copper Mines PLC, the Zambian copper unit of Vedanta which Vedanta plans to list publicly this year.

In an interview with Dow Jones Newswires, Jalan refuted the likelihood of a rights issue. "There won't be a rights (issue) at Vedanta," he said, adding that a rights issue was a resource of last resort.

The company has 18 months to find an alternative to pay the loan before having to resort to selling shares, Jalan told analysts earlier in the day.

Vedanta may be able to raise enough funding to cover the bridge loan to equity from a listing of Konkola's shares alone or by using its free cash flow, a London-based analyst said. Last year Vedanta said it planned to raise $1.1 billion in proceeds by listing KCM's shares in London.

Other factors contributing to the share price decline include a mining-sector sell-off due to risk aversion and falling metal prices, two London-based analysts said.

The FTSE-350 mining sector index was down 1.9% while London Metal Exchange benchmark copper, aluminum, zinc and lead--all products sold by Vedanta--were down more than 3.4%.

Liberum Capital also said Vedanta's full year net profit missed expectations after the company earlier Thursday reported exceptional costs arising primarily from the full write down of an Orissa iron ore mine lease that wasn't renewed ($118.3 million) and acquisition costs of $32.6 million related to the purchase of Anglo American PLC's (AAL.LN) zinc assets and Cairn India.

-By Alex MacDonald, Dow Jones Newswires; [phone]; [e-mail]