November 20, 2008

Committee of secretaries to take call on Balco stake sale

It is reported that the Indian government’s cabinet committee on economic affairs has decided to set up a committee of secretaries to take a stand on the call option notice given by Sterlite Industries to acquire 49% stake in Balco. The committee will comprise secretaries of department of legal affairs, department of disinvestment and mines ministry. It will finalize the government’s position on legal issues in the process.

Mr Priyaranjan Dasmunsi union minister of information and broadcasting recently said that “The cabinet committee on economic affairs has considered the call option notice given by Sterlite Industries India to acquire 10.81 crore equity shares held by the government in Balco. Since that the issue of selling the stake is in high court, the committee will consider the government’s position in the case and in the ongoing mediation and arbitration as well. “

It is understood that the mines ministry had told CCEA that the centre may be forced to sell its remaining 49% stake in Balco at 75% of the pre determined price as per the shareholders’ agreement if Sterlite’s right to buy the shares is upheld in the arbitration process. Mines ministry said that “If the arbitration award goes against the government, it may have legal and financial implications.”

While accusing the government of a breach of contract, Sterlite has asked the Delhi High Court to restrain the former from selling equity to any other buyer or the public.

In 2001, 51% of the government stake in Balco was sold to Sterlite for INR 551.50 crore at INR 49.01 per share. In March 2004, Sterlite sent a call notice to acquire the remaining 49% shares along with a cheque of INR 1,098 crore but the government declined the offer. The law ministry has maintained that Sterlite cannot ask the government to sell the remaining stake in Balco at pre determined price under the provision of call option in the shareholders’ agreement.