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Sterlite Industries - ASARCO sale

ASARCO sale entering the last lap: The ASARCO bidding process is entering the final round of hearning which is scheduled for on August 10, 2009. As per the latest filings by ASARCO, creditors have to approve one of the following 3 plans i.e. (1) the parent (Grupo Mexico) (2) the debtors (Sterlite) and (3) Harbinger Capital.

The Parent (Grupo Mexico) plan.
According to the re-organizaiton plan proposed by the Parent (Grupo Mexico) it would contribute US$1.46 bn to the claimants and would also use the US$1.4 bn cash in the books of ASARCO. However, it differs from other plans in its assessment of claims against Sterlite for breach of its initial agreement to acquire ASARCO for US$2.6 bn and has assessed the claim to be worth atleast US$400 mn to US$ 1bn compared to the Debtors’ Plan assessment of claim value at US$100 mn.

The Debtors’ (ASARCO with Sterlite) plan.
The debtors’ plan calls for initial payment of US$1.1 bn by Sterlite and deferred payment of US$770 mn for which the present value has been estimated at US$308.7 mn. It would also use the US$1.4 bn cash with ASARCO. Also, the plan pursues litigation against Grupo Mexico and values its claim at US$750 mn which would be used for claim settlements. According to this plan the claims would be settled in full.

The Harbinger plan.
As per the Harbinger plan, it would infuse US$500 mn and also use the US$1.4 bn cash in ASARCO’s books. Besides it would pursue claims against Grupo and Sterlite and has valued these claims at US$750 mn and US$100 mn, respectively.

One cannot assess which way the affected parties would vote. But in case they vote in favor of the Parent plan or the Harbinger plan, it would mean additional risk to Sterlite which could be in upwards of US$100 mn. However, Sterlite has also clarified that it holds no assets or bank accounts in the US, so pursuing claims would not be easy for Grupo Mexico.

Hence investors could stay out of the Sterlite stock for a while and wait for the things to pan out.