Anil Agarwal
Anil Agarwal Image Credit: IANS

New Delhi: Indian billionaire Anil Agarwal may be calling off his charge at Anglo American plc — but he, his adviser JPMorgan Chase & Co., and the hedge funds that financed him can at least console themselves with the profits they made.

The only people who were exposed to any real risk in the adventure look to have been Anglo’s shareholders. Agarwal acquired a roughly 20 per cent stake in 2017, shelling out barely any cash himself.

£100m

billionaire Agarwal’s profit on Anglo investment

The shares were acquired almost entirely from hedge funds who had borrowed them from other investors, with JPMorgan acting as broker. In return, the funds received an unusual bond issued by the billionaire’s investment vehicle, which would be repaid in the Anglo shares he had acquired.

Notably, the structure limited the tycoon’s exposure to the ups and downs of Anglo’s share price.

Both sides have done well out of this. First, Agarwal. He has had to pay roughly £420 million (Dh1.9 billion or $521 million) of coupons on the bonds. If his Anglo shares went up a lot — as they did — the terms allowed him to keep nearly 10 per cent of his holding on redemption, which was announced on Thursday (July 25). On Friday, he sold that residual holding for almost £520 million.

Happy returns
Agarwal acquired a roughly 20 per cent stake, in 2017, from hedge funds. In return, the funds received a bond issued by the billionaire’s investment vehicle, which would be repaid in the Anglo shares he got.

His £100 million profit looks to be a 24 per cent gain. But the internal rate of return will be much higher because he didn’t have to shell out of those coupons on day one.

Hedge funds too got what they wanted

The hedge funds weren’t taking much risk either. Having borrowed Anglo shares and sold them to Agarwal, their profit came from the coupon. The Anglo shares received on redemption would — broadly — cover their short position in the miner’s stock.

Like the billionaire, the hedge funds would have put down very little capital in the trade. Their main risk was that the coupons wouldn’t get paid. But it would have been astonishing if Agarwal had defaulted.

76%

gain in Anglo share price since Agarwal acquired stake

JPMorgan’s fees aren’t clear. But the huge amount of ancillary banking activity here — effectively the stage management of the whole operation — is a fee in itself.

That leaves Anglo’s rank-and-file shareholders. The stock price has risen 76 per cent since Agarwal popped up, so they seem well-rewarded. Some of them will have also received fees for lending out their stock.

But of all the protagonists they were the only ones with direct exposure to the share price.

What’s more, they have suffered a period of uncertainty when it was unclear what Agarwal, with his massive holding, really wanted. They will be relieved that the register is losing an unpredictable force. Their returns are the most deserved.