Anil Agarwal consolidates Cairn India into Sesa Sterlite to take on RIL

The strategic significance of the newly formed Sesa Sterlite is very clear. The company is going to take on Reliance Industries on the upstream (crude production) front. Around one and a half years ago, when Vedanta acquired Cairn India, it was a secret over the night deal. The implication of the deal was that a fresher is coming into compete in the Indian petroleum upstream business. Till then, the upstream sector was dominated by ONGC and Reliance Industries with Cairn India being a foreign operator.

            Vedanta’s entry indicated that Reliance is not going to be the sole major private sector upstream operator in the highly strategic crude production sector of the country. Besides, Vedanta being a metal and mining company turning into the oil business also added freshness to the event.

            The significance of the present consolidation, especially the internal structure of the company is also to be noted. Reading carefully, it is visible that Cairn India is valued at around US $9 billion out of the total estimated value of US $20 billion of Sesa Sterlite. The newly formed entity involves nine companies including Cairn India. This means Sesa Sterlite is going to be mainly an upstream petroleum firm because of the overweight of Cairn India.

            The formation of Sesa also may strengthen competition for mineral resources. Besides, crude and natural gas; coal, metals are potential areas of common interest for both Sesa Sterlite and RIL. Interestingly, on the crude front, Cairn’s Rajasthan oil field’s reserves are comfortable compared to the Reliance’s falling output from the KG basin. Another implication of the emergence of Sesa Sterlite as a company with strong profits, cash balance size and maneuverability is that resource war and corporate bullying activities are set to intensify.