* Probe into financial, other irregularities
* Investigation to be completed in 6 months
* Stock recovers losses, ends up 1.5 pct; Vedanta shares dip
* India iron ore exports unaffected for now
(Adds comments, details, updates share price)
By Pratish Narayanan and Ruchira Singh
MUMBAI, Oct 29 (Reuters) - India's Sesa Goa, a $5 billion unit of London-listed metals group Vedanta Resources, is being investigated by the Indian government for financial and other irregularities.
India's largest iron-ore exporter said on Thursday 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 India's biggest corporate scandal, a $1 billion fraud at IT services firm Satyam Computer.
"I think the overseas investors will be very happy that the regulatory agencies in India are becoming more and more intrusive in company affairs," said Rishi Sahai, managing director of Cogence Advisors, a New Delhi-based corporate advisory firm.
"There is an increased focus on protecting shareholders' interest," he said.
Sesa Goa said it believed the investigation originated from a complaint filed in 2003 by a shareholder of Sesa Industries. Vedanta bought a 51 percent stake in Sesa Goa in 2007 for nearly $1 billion from Japanese trading house Mitsui & Co.
The company said it received requests from the Registrar of Companies for information from 2001 to 2009.
"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.
Mitsui said it had not heard from the SFIO or Sesa Goa about the investigation and was not in a position to comment.
"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."
For a FACTBOX on India's iron ore industry, click
SHARES RECOVER
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.
Sesa Goa shares fell as much as 6 percent on Thursday before rebounding to close up 1.5 percent at 300.10 rupees. In London, Vedanta shares were down 0.7 percent, while the mining index was up 1.4 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 ended up 7 percent on Wednesday after earlier dropping to a three-week low.
"You can't expect it to fall much more, pending further clarity," said a dealer at a brokerage in Mumbai on Thursday.
Last week, Sesa Goa reported a 50 percent drop in September quarter net profit to 1.69 billion rupees ($35.6 million).
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.
India's ministry of corporate affairs declined comment.
ORE TRADE UNAFFECTED
A dealer at a large iron ore miner and exporter in eastern India said the investigation was not hurting supplies but it had cast a shadow 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.
Sesa Goa exports more than 90 percent of its iron ore, and China is its biggest market.
State-run NMDC, the country's largest miner, is among Sesa Goa's competitors, though it is not a large exporter.
Demand from China for iron ore for the past two days was healthy, and enquiries were up, the dealer said.
Iron ore prices were the same as last week at $93-$95 a tonne for ores with 63.5 percent iron content, Mysteel, a China-based consultant said on Thursday.
In the year to March 2009, Sesa Goa produced 15 million tonnes of iron ore, almost all of which it exported, out of overall industry exports from India of 106 million tonnes.
In June, Managing Director P.K. Mukherjee said 2009/10 output would be 23 million tonnes after buying rival Dempos.
Mukherjee declined comment on Thursday and referred Reuters to a media relations executive, who was unavailable. (US$ = 47.40 rupees) (Additional reporting by Prashant Mehra in Mumbai, Sumeet Chatterjee in Bangalore and Yuko Inoue in Tokyo; Writing by Tony Munroe; Editing by John Mair/Will Waterman)