Mumbai, Dec. 18: Sterlite Industries today announced a rights issue that will channel into expansion plans part of the IPO funds raised by Vedanta Resources, the group holding company. The non-ferrous metal major said its board would meet on December 24 to decide on the rights issue.

The news surprised the markets initially. However, the only way by which Vedanta Resources could infuse funds into various group companies was by means of a rights issue.

Its past reputation of trying to dismiss small shareholders through a botched plan of equity capital reduction caused some misgivings among minority shareholders on the latest move.

“The rights issue will help the company fund its expansion plans and keep the small investor out by pricing it very high,” a shareholder said.

The doubts among minority shareholders are due to rising share price of Sterlite over the past few months. The Sterlite share ended at Rs 1,280.95 on the Bombay Stock Exchange today from its previous close of Rs 1,256.75, a gain of Rs 24.20.

“If the subscription to the rights issue is pegged close to the prevailing market rate, few shareholders may subscribe,” an analyst said. It is not likely that the company will announce a rights issue at a huge discount to the current market price, analysts added.

“The rights issue is the only way to get in the funds raised by Vedanta resources,” the analyst said.

London-based Vedanta Resources is the main holding company of Anil Agarwal's diversified metals and mining businesses in India. The promoter’s controlling stake in various group companies form an intricate but complicated pattern. Vedanta Resources will own 55.2 per cent of Sterlite Industries and 80 per cent of Madras Aluminium Company through its wholly-owned subsidiary, Twin Star Holdings Limited.

Sterlite, in turn, owns 51 per cent of Bharat Aluminium Company, the third largest aluminium company in the country, and 46 per cent of Hindustan Zinc. Balco and Hindustan Zinc stakes were acquired by the group from the government when it was privatised. The group recorded a turnover of Rs 4,414.5 crore ($981 million) in 2002-03. “The gross proceeds of the initial public offering of Vedanta are expected to be approximately $700 million and will enable Vedanta to realise its growth opportunities,” a company statement said.

Hind Zinc to get $400m

The Sterlite group is planning to invest $400 million (Rs 1,800 crore) over the next one-and-a-half years to increase zinc and lead production of Hindustan Zinc.

The Sterlite group owns 65 per cent in Hindustan Zinc, an erstwhile government-managed company. The group has proposed a $2-billion investment in firms controlled by it over the next three years.

Kishor Kumar, vice-president (marketing) of Hindustan Zinc, said the company’s zinc production capacity is being scaled up to 4 lakh tonnes from 2.25 lakh tonnes, while lead production is being raised from 35,000 tonnes to 80,000 tonnes.