Sesa Goa?s acqisition of a 20% strategic stake in Cairn India could cost it roughly $3 billion. According to Tower Capital, ?Sesa Goa has cash of Rs 8,000 crore but it will need to fork out close to 15, 000 crore and even if cash flows are around Rs 2,000 crore, it may need to borrow Rs 5,000 crore. And that could lower Sesa?s enterprise value/Ebitda from 5.2 to 8.2 times.? However, PK Mukherjee, managing director, Sesa Goa, said the company had adequate cash and would not need to borrow to fund the deal. ?This will not upset our organic growth plans to achieve the 50 million tpa target by 2014 and iron ore asset acquition that we may come across,? Mukherjee said, adidng that the company could always leverage its balance sheet if necessary.

Responding to analysts? queries on whether the company would recall the Rs 1,000 crore ICD given to Vedanta, he said, ?If required, yes. Currently, we have $ 2 billion cash in hand, which includes the Rs 1,000 crore given to Vedanta.?

Analysts wondered whether the transaction was a means of using idle cash and why Sesa Goa alone was not acquiring the entire stake.

Mukherjee observed that the cash was currently earning a return of just 4-5%, which was eroding shareholder value. ?We are a strategic investor and as far as full 51% stake is concerned I dont think we can stretch Sesa?s balance sheet,? Mukherjee said, adding this was an ideal investment for idle cash. Should Sesa Goa fall of short of 20% of the equity, it should acquire the balance from Vedanta or Cairn Energy at Rs 405 a share deal.

According to Mukherjee, the cash in the company is currently getting just 4-5% return, which is eroding the value of the shareholders.

However, this strategic investment would be an an ideal investment. Moreover, Vedanta Group and Sesa Goa are very committed and bullish on India?s resource scenario and this is an ideal fit for investment for ideal cash.

As a part of this transation, Sesa Goan will be making an open offer of 20%. If any shortfall arises, the company will acquire either through Vedanta or Cairn Energy.