Sesa Merger Was Tax Evasion Device by Agarwal, India Alleges

By Abhishek Shanker and Pratap Patnaik July 14, 2014


India’s government challenged the merger of Vedanta Resources Plc (VED)’s local units in court on the grounds the deal by the flagship company of billionaire Anil Agarwal was aimed at avoiding taxes.

The merger is a “device” for tax evasion, according to the petition filed today by the Ministry of Corporate Affairs, citing the income tax department. The ministry is seeking the nullification of the amalgamation. The Supreme Court will hear the plea on July 17.

Sesa Sterlite Ltd. (SSLT), India’s biggest aluminum maker, emerged from the combination of Vedanta’s iron-ore mining unit Sesa Goa Ltd. and copper producer Sterlite Industries (India) Ltd. in an all-share transaction. Investors got three Sesa Goa shares for five shares of Sterlite, while London-based Vedanta transferred to the new entity for $1 its 38.8 percent holding in Cairn India Ltd. (CAIR), including debt of $5.9 billion.

“I don’t think this petition will have any impact on the merged entity as it was carried out after court’s approval,” Ashish Kejriwal, analyst at Elara Securities India Pvt. who has a “reduce” rating on Sesa Sterlite, said in Mumbai.

The transaction, announced in February 2012, cut the parent’s debt as more than half was transferred to the new entity. The deal received court approval in August 2013.

Sesa Sterlite spokeswoman Roma Balwani declined to comment.

Shares of the Panaji, Goa-based Sesa Sterlite fell 1.2 percent to 289.05 rupees at the close in Mumbai today. The benchmark S&P BSE Sensex fell 0.1 percent.

Earnings at Sesa Sterlite mainly come from dividends paid by its oil and gas and zinc units. The company has faced court-ordered curbs on mining and delays in its plans to secure the government’s remaining stake in unit Hindustan Zinc Ltd.. (HZ)


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