LONDON (Reuters Breakingviews) - Anil Agarwal has added an extra twist to his Anglo American riddle. The Indian tycoon’s scope to use his 20 percent interest in the UK-listed miner to effect M&A would seem to hinge on him getting various minority shareholders on side. The latest antics of Vedanta Limited, the $8 billion Mumbai-listed company which he controls, won’t help.

Vedanta disclosed on Thursday that its wholly-owned Cairn India unit had spent $200 million acquiring an economic interest in the same convoluted structure used by Agarwal’s personal vehicle, Volcan Investments, to acquire its Anglo position. Vedanta explained the move as cash management activities, noting that the investment had performed positively so far.

Maybe it has, but the 20 percent slump in Vedanta’s share price implies minorities aren’t impressed by Agarwal’s failure to draw a distinction between the company and his personal interests. Without greater clarity on how the valuation of the investment stacks up, they can’t tell whether this is a good deal, or a transfer of value to Volcan.

Agarwal has form in treating minorities brusquely. The buyouts of Cairn India and parent Vedanta Resources were offered on ungenerous terms. He is also wanting in wider corporate governance – after police shot dead 13 protesters in the state of Tamil Nadu last May, he blamed the initial unrest on a foreign conspiracy.

Agarwal’s current position in Anglo is in the form of bonds, with a 4 percent coupon, that can convert into equity next year. At current valuations, 20 percent of Anglo’s equity is worth $7 billion – a stretch to acquire given Vedanta already has $5.7 billion of net debt and its share price had fallen 40 percent in a year even before Friday’s slump. That’s why rival miners reckon he wants to use his holding to force a split of Anglo, perhaps into a South African mining champion and a host of international copper and other assets.

Given that this would leave him with a sizeable stake in one of these parts, making it happen hinges on convincing the South African government and international investors that he is a good partner. Vedanta’s “cash management” will leave them wondering.

CONTEXT NEWS

- Vedanta Ltd shares fell sharply on Feb. 1 after the Indian mining group disclosed a unit of the company has made an investment in fellow miner Anglo American. The seller is the company’s founder Anil Agarwal.

- Mumbai-listed Vedanta said on Jan. 31 that its foreign unit Cairn India Holdings had paid a “part sum” of $200 million to buy a position in Anglo from Agarwal’s Volcan Investments, Vedanta’s ultimate parent company, as a part of its "cash management activities".

- The transaction, which took place during the quarter ended Dec. 31, bought what the statement described as an economic interest in Volcan’s structured investment in Anglo. The ownership of the underlying shares and the associated voting interest remains with Volcan, it said.

- Volcan currently controls around 20 percent of Anglo’s shares via bonds that convert into equity in 2020.

- Vedanta added that Cairn’s investment had performed positively on an unrealised mark-to-market basis.

- Vedanta shares were down 17 percent as of 0950 GMT on Feb. 1.

(Editing by Una Galani and Liam Proud)

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