After years of misfortune and false starts in mining business, the Vedanta Group is all set to transform itself with a new business stream. The company has tied up with world leader Foxconn to set up a semiconductor factory in Gujarat
Patna-born Anil Agarwal, the chairman of Vedanta Resources Ltd, has reinvented himself several times in his four-decade-long entrepreneurial career. Having started his career as a scrap metal trader in the 1970s, Agarwal is used to facing challenges and has survived long years of misfortune in business, only to rise from the ashes with a new business stream.
Known as the mining czar of India, Agarwal’s Vedanta had nothing going its way in the decade of 2010, that was marred by protests against its mines across the country, putting a question mark over his ability to steer the business in a changing global economy where green activism was said to have destroyed an industry accused of displacing people from their lands into misery. But, in 2022, the sexagenarian businessman is back with a plan to transform his company. Agarwal has joined hands with Taiwanese firm Foxconn in a 60:40 joint venture to set up a semiconductor factory in Gujarat with an investment worth Rs 1.5 lakh crore. It is the largest investment by any company in an Indian state and to have it in Gujarat, a state which is the crown jewel of Prime Minister Narendra Modi’s domestic politics, is a big move. Agarwal wants to ensure that he avoids the pitfalls that caused him setbacks in the previous decade.
Leaving the Past Behind
In 2010, Agarwal received a jolt when the environment ministry under the United Progressive Alliance (UPA) government cancelled the clearance to mine bauxite to Vedanta for its aluminum plant set up with an investment of $8 billion. He had gone to the Supreme Court against the then Union government’s decision, but the former did not agree with his plea. Dejected by the court and the government’s decision, in 2013, Agarwal in a TV interview had said that he regretted the decision of investing in the aluminum plant in Odisha. In the absence of bauxite, which is the raw material for aluminum production, he had to source it from other states and imports, causing his company an additional expenditure of Rs 600 crore per annum.
Vedanta’s bad luck extended to its oil and gas business as the UPA government had disallowed the company from expanding its oil field in Rajasthan. Agarwal had to seek the intervention of then prime minister Manmohan Singh. Its Rajasthan block continues to be India’s largest private sector-operated oil block. The slump in the international commodities market and Vedanta’s struggle with regulators in India affected the company’s stock price in India as well as on the London Stock Exchange (LSE). But, Agarwal saw an opportunity in distress. He de-listed Vedanta from the LSE in 2018, amid protests from minority shareholders. A similar attempt to de-list the company from the Indian stock market failed in 2020, as the company could not acquire the minimum number of shares through an open offer.
Diversified Future and New Risk
Agarwal has the ability to lie low in difficult times and strategise for the future. Unlike some of the other business groups in India that incurred debilitating losses during the “lost Indian decade” in the aftermath of the global financial crisis, Agarwal used the heft of the down-but-never-out mining business to get into a tie-up with Foxconn group for building semiconductors in India.
In the post-Covid world, India’s automobile and electronics industry suffered a jolt due to semiconductor shortage in the international market, and the Narendra Modi-led Bharatiya Janata Party government at the Centre announced a scheme to promote semiconductor manufacturing in India. Agarwal was quick to sense the opportunity and sought water and electricity (major requirements for setting up a semiconductor plant) from different state governments.
While the company has entered the fray for building India’s first semiconductor factory, which, according to Agarwal, will be up and running within two-and-a-half years of the groundbreaking ceremony, how the funding for the venture will be raised in unclear. Since Vedanta is an overleveraged company, Agarwal has said that the investment for setting up the semiconductor foundry will be made through Volcan Investment, a holding company for Vedanta Ltd. This means that the benefits and risks accruing from the semi-conductor business will benefit the promoters’ holding company and not the shareholders of Vedanta.
“We do not expect Volcan to extract any cash from Vedanta to fund this investment. Any deviation from this expectation, such that Vedanta is used as a financing vehicle for Volcan, will weigh on the company’s weak liquidity profile and pressure its B2 negative corporate family rating,” a report by Moody’s Investors Service recently said.
The billionaire has plans to unlock the underlying value of the group through demerger of its aluminum, iron and steel and oil and gas businesses. It is expected that all these businesses will be listed separately to generate cash for the capital expenditure. It is part of Agarwal’s strategy to avoid past instances when one group company has been used as a cash cow to fund the group’s other plans, drawing ire of minority shareholders. Agarwal, with his foray into a new-age business, will need to keep corporate governance in mind. After all, he is in a joint venture with the world’s biggest manufacturer of high-tech products and will run the business that other business tycoons of India will be envious of.