(Bloomberg) — Indian billionaire Anil Agarwal, once the biggest shareholder in Anglo American Plc (LON:), plans to exit his stake in the diversified mining company.
Volcan Investments (OTC:)., Agarwal’s holding company, will unwind the position by calling an exchangeable bond, part of an unusual structure that effectively gave him the shares on loan. Cairn India Holdings, an offshore unit of Vedanta Ltd (NYSE:), said separately that it ended a structured investment in Anglo agreed with Volcan in December that netted a gain of about $100 million in the eight-month period it was held.
Agarwal will likely make about $500 million from his investment and pocket between $200 million and $300 million after fees, according to people familiar with the matter who asked not to be identified. It’s a small gain considering Anglo shares had soared more than 80% since March 2017, when Agarwal announced his intentions. Anglo fell as much as 5.1% and traded 4.5% lower at 8:05 a.m. in London.
The future of Anglo American, one of the most iconic names in mining, has been in question ever since Agarwal built his surprise stake. Analysts have speculated about plans to break up or merge Anglo, which owns some of the best , diamond and platinum mines in the world. But the market moved against Agarwal, making any prospective plans more difficult.
The billionaire maintained that his interest in Anglo was a family investment and he didn’t intend to make a takeover offer. Even so, the structure used to hold the Anglo investment was unusual because it offered Agarwal voting rights and minimal exposure to the stock price.
“As Anglo American’s share price climbed, it became even more clear that Agarwal lacked the firepower to work an approach,” said Ben Davis, an analyst at Liberum Capital Markets. “He’s made far less than he would have done with a straight investment, though his bankers would have done well out of it.”
The biggest challenge Agarwal would have faced is the surge in Anglo’s share price since he bought his first tranche. His two listed ventures, Vedanta Ltd. and Hindustan Zinc Ltd., slumped over the same period making any kind of merger hard to execute. At the same time, presumed allies such as South Africa’s Public Investment Corp. looked less aligned.
Agarwal amassed his stake through a mandatory exchangeable bond issued by Volcan and secured by Anglo shares. The bonds were issued in March and September 2017 and financed the $3.5 billion pound ($4.4 billion) investment.
Volcan now plans to call the exchangeable bond, according to a statement released late Thursday, meaning investors who owned the Volcan bond will receive Anglo shares. The mining company could see higher trading volumes in the coming days as the new Anglo shareholders close out the short positions they used as a hedge, said RBC Capital Markets.
“The unwind of this structure will remove, in our view, any tangible potential for Volcan to pursue large-scale corporate activity with Anglo American going forward,” said Tyler Broda, an analyst at RBC. “We would not expect to see any fundamental derating in Anglo American on the back of this adventurous bond coming to an end.”
There were doubts on group sustainability, given debt levels at Volcan and Vedanta Resources Ltd., as well as doubts on whether a bid for Anglo would be mounted, ICICI Securities Ltd. analysts led by Abhijit Mitra said in a note on Friday. Volcan’s decision coincides with factors including Anglo’s share buyback and Chief Executive Officer Mark Cutifani indicating he won’t leave the company until completion of a copper project in Peru, the brokerage said.
Vedanta Resources’ $1 billion 6.125% note due 2024 rose the most since January on Friday, surging 2.2 cents on the dollar to 94.3 cents as of 1:55pm in Hong Kong, according to Bloomberg-compiled prices. Vedanta Ltd. shares fell 2.8% in Mumbai ahead of the company’s earnings later in the day. Agarwal’s Volcan Investments is the parent of Vedanta Resources, which in turn owns the Mumbai-listed Vedanta Ltd.