HONG KONG (Reuters Breakingviews) - Anil Agarwal is betting the house on Africa. The Indian tycoon is making a personal bet on Anglo American worth up to 2 billion pounds through a fiddly, bond-financed deal. The raid signals a desire to build a global mining giant. There is little overlap with Agarwal's flagship London-listed Vedanta Resources, but a 12 percent stake would give him a prime position in the event of an Anglo breakup.
On first glance, this looks exceptionally bold. The tycoon's own net worth is just $2.7 billion, according to Forbes. Agarwal is making the investment through his family holding company but pledging almost one-third of his near-70 percent stake in Vedanta Resources. That outfit, which sits atop his own commodities empire, has a market value of just 2.3 billion pounds.
However, Agarwal's personal fortune masks the real size of his empire, which is undervalued. The cash-rich unit Hindustan Zinc alone has a market value of almost $18.8 billion. Ultimate parent Vedanta Resources is focusing on paying down debt and trying to simplify by merging two other Indian units, Vedanta Ltd and Cairn India, which would ultimately boost its own value.
The Anglo stake builds on Agarwal's keen interest in South Africa, a place many top mining executives now avoid due to political tensions. Vedanta acquired Anglo's zinc assets in 2010 for $1.3 billion. Vedanta also has oil interests in the country, and further afield owns a big copper mine in Zambia. The tycoon wants to have "one arm in India and another arm in Africa". Last year Agarwal even accompanied Indian Prime Minister Narendra Modi to South Africa, and the two countries have strong ties.
Anglo itself has just returned to a full-year net profit and is easing back on planned asset sales following a recovery in commodity prices. However, Chief Executive Mark Cutifani has said he remains open to a different ownership structure for its South African assets.
Agarwal says he supports Anglo's management and is not seeking a full takeover but the size and manner of the deal have a semi-hostile feel. Despite this, as Anglo's second-largest shareholder, Agarwal is well-placed to forge a deeper union in time.
($1 = 0.8151 pounds)