MUMBAI: Sesa Goa, a $5 billion unit of London-listed Vedanta Resources, is being investigated by the government for financial and other irregularities.
India's largest iron-ore exporter said it and its unlisted Sesa Industries Ltd (SIL) subsidiary were under investigation by the Serious Fraud Investigation Office (SFIO), and the probe had to be completed in six months.
The investigation comes 10 months after a $1 billion accounting fraud at IT services firm Satyam Computer, which was India's biggest corporate scandal and prompted calls for more transparency in accounting practices of Indian firms.
"Sesa Goa is expanding its mining operations in India, and this might have invited regulatory scrutiny," said Deven Choksey, chief executive of K.R. Choksey Shares and Securities.
"Otherwise it is very confusing and there is no clarity on what this investigation is all about."
State-run NMDC, the country's largest miner, is among Sesa Goa's competitors though it is not a large exporter. Sesa Goa exports more than 90 percent of its iron ore, and China is its biggest market.
"The scope of investigation includes looking into the state of affairs of the company and SIL in respect of mismanagement, malpractices, financial and other irregularities," Sesa Goa said in a statement.
Headquartered in the picturesque western Indian state of Goa, famous for its beach resorts, Sesa Goa's mining operations have faced protests from activists who claim it pollutes the environment and contaminates ground water.
In 2007, Vedanta bought its 51 percent controlling stake in Sesa Goa for nearly $1 billion from Japanese trading house Mitsui & Co.
Sesa Goa shares fell as much as 6 percent in a weak overall market on Thursday before rebounding and were up 0.8 percent by 0915 GMT. In London, Vedanta shares were down 1.4 percent while the mining index was up 1.1 percent.
Sesa Goa shares fell 12 percent on Tuesday after local media first reported the investigation. The company said then it was unaware of any probe, and its shares rose 7 percent on Wednesday after earlier dropping to a 3-week low.
"Nobody knows anything much about the investigation, but the stock has fallen quite sharply," said one dealer at a brokerage on Thursday. "You can't expect it to fall much more, pending further clarity."
Last week, Sesa Goa reported a 50 percent drop in September quarter net profit to 1.69 billion rupees ($35.6 million).
India's ministry of corporate affairs was not immediately available for comment.
DETAILED PROBE
An official at the state of Goa's registrar of companies said it had received a complaint relating to "over-invoicing" and "under-invoicing", as well as in relation to the merger of SIL into Sesa Goa.
The official, who declined to be identified because he was not permitted to speak with the media, said the investigation had been started by the Goa registrar of companies in August and had now been taken over by the federal agency.
Sesa Goa said on Thursday it believed the investigation originated from a complaint filed by a shareholder of Sesa Industries Ltd in 2003. It has received requests from the Registrar of Companies for information from 2001 to 2009.
A dealer at a large iron ore miner and exporter in eastern India said the investigation was not hurting supplies but it had cast gloom over the mining sector.
"The sentiment is down amongst miners. People feel if the government can investigate the biggest miner (exporter), it can investigate others as well," the dealer said.
Demand from China for iron ore for the past two days was healthy, and enquiries had been higher than before, he said.
Iron ore prices were the same as last week at $93-$95 a tonne for ores with 63.5 percent of iron content, Mysteel, a China-based consultant said on Thursday.
In the year to March 2009, Sesa Goa produced 15 million tonnes of iron ore, almost all of which it exported, out of industry exports of 106 million tonnes.
In June, Managing Director P.K. Mukherjee said 2009/10 output would be 23 million tonnes, following its acquisition of a rival miner, Dempos. Mukherjee declined comment on Thursday and refered Reuters to a media relations executive, who was unavailable.