Anil Agarwal-promoted Vedanta Ltd on Friday announced its board had approved a pure-play, asset-owner business model that would ultimately result in six separate listed firms. The restructuring is expected to be completed in 12-15 months, company executives said.
The proposed plan entails five new listed firms — Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, and Vedanta Base Metals — in addition to Vedanta Ltd. “We believe (the demerger) will unlock value and potential for faster growth in each vertical,” said Agarwal, chairman of Vedanta Ltd.
Vedanta Ltd is expected to act as an incubator and house the shareholding in Hindustan Zinc and some of the company’s new businesses, including nickel, facor and the display glass, and semiconductor.
“The demerger will entail a vertical split; for every one share of Vedanta Ltd, the shareholders will additionally receive one share of each of the five newly listed companies,” the company said. Each company will have its own independent board and will come at a face value of Rs 1 per share, except for Vedanta Power at Rs 10 per share.
In addition to Vedanta’s announcement, its zinc subsidiary, Hindustan Zinc, announced a comprehensive review of its corporate structure for unlocking potential value and intention to create separate legal entities for undertaking the zinc and lead, silver, and recycling businesses.
In a post-announcement call with analysts, the Vedanta Ltd management said the capital expenditure plans announced so far remained unchanged. On the pledged shares at both Hindustan Zinc and Vedanta, the company said requisite lender approvals would be sought and no changes were expected.
On the upstreaming of dividend from Vedanta Ltd, the management said the new listed entities would have their own capital allocation policies and the dividend policies would be examined at that stage. In the past 10 years, according to Vedanta’s disclosures, the company has paid dividends of Rs 85,000 crore.
Even as Vedanta Ltd announced its grand restructuring plans on Friday, rating agency Moody’s lowered its long-term issuer credit rating on Vedanta Resources and the issue rating on the company’s outstanding debt to ‘CCC’ from ‘B-‘. The rating agency said: “We believe the likelihood has increased that Vedanta Resources Ltd will undertake a liability management exercise that we could consider distressed under our criteria.”
The latest exercise to restructure businesses into separate entities is also being viewed as another attempt to unlock proceeds for debt repayment at the promoter level. “Agarwal’s efforts remind me of the phrase ‘rearranging the deck chairs on the Titanic’,” Amit Tandon, managing director and founder of proxy advisory firm Institutional Investor Advisory Services India Ltd, was quoted as saying in a Bloomberg news story.
Not all analysts consider the announcement an ‘event’. “The timeline is of one year; the capex, dividend, and debt factors remain the same … the exercise should help the promoters get out some money,” said an analyst with a domestic brokerage firm who did not wish to be identified.
The proposed restructuring is subject to a host of approvals, including from the National Company Law Tribunal (NCLT), lenders, and shareholders.
Among other queries raised with the management was the separation of debt and assets attributable to each demerged business. Top executives said there might be some changes on that part; however, it would remain in accordance with the stated rules for such a process.
This is not the first time the conglomerate has proposed a drastic change to its corporate structure. The oil and gas business, for instance, was merged with Vedanta as recently as 2016. In 2020, Vedanta Resources also proposed delisting the India-listed entity but later withdrew the plan.
“We consider different corporate actions at different times, depending on what the market expects of us. The market no longer likes the conglomerate kind of business,” said Ajay Agarwal, president-finance for Vedanta, in a call with Business Standard. Agarwal did not comment on whether the exercise would involve the promoters offloading any of its stake.
