In a significant development, Vedanta Ltd, led by the visionary Anil Agarwal, has unveiled a groundbreaking plan aimed at maximizing value through a comprehensive restructuring initiative. The company’s board recently gave the green light to this innovative pure-play, asset-owner business model, set to lead to the creation of six distinct publicly traded companies. This strategic maneuver, expected to conclude within 12-15 months, is poised to unlock substantial value and attract substantial investments from major players, according to company executives.
The proposed blueprint involves the emergence of five fresh listed entities alongside the already established Vedanta Ltd. These new entities, namely Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, and Vedanta Base Metals, are poised to become vibrant entities in their respective niches.
Anil Agarwal, the Chairman of Vedanta Ltd, expressed his optimism about the demerger, stating, “We believe (the demerger) will unlock value and potential for faster growth in each vertical.”
Under this restructuring, Vedanta Ltd is set to evolve into an incubator, housing shareholdings in Hindustan Zinc and several of the company’s new ventures, such as nickel, facor, display glass, and semiconductor.
The demerger itself entails a vertical split, with each shareholder of Vedanta Ltd receiving one share of each of the five newly listed companies for every one share they hold. These companies will operate independently, each with a face value of Rs 1 per share, except for Vedanta Power, which will have a face value of Rs 10 per share.
In addition to Vedanta’s restructuring announcement, its zinc subsidiary, Hindustan Zinc, has initiated a comprehensive review of its corporate structure to unlock the potential value and create separate legal entities for its zinc and lead, silver, and recycling businesses.
During a post-announcement discussion with analysts, Vedanta Ltd management assured that previously announced capital expenditure plans would remain unchanged. Regarding pledged shares at Hindustan Zinc and Vedanta, the company noted that necessary lender approvals would be sought with no expected changes.
With regards to dividend upstreaming from Vedanta Ltd, the management explained that the new listed entities would establish their own capital allocation policies, and dividend policies would be examined at a later stage. Over the past decade, Vedanta has paid dividends totaling Rs 85,000 crore.
However, amidst Vedanta Ltd’s restructuring plans, Moody’s has lowered its long-term issuer credit rating on Vedanta Resources and the issue rating on the company’s outstanding debt. The rating agency expressed concerns about the increased likelihood of Vedanta Resources undertaking a liability management exercise deemed distressed under their criteria.
This restructuring effort is also seen as a strategy to generate proceeds for debt repayment at the promoter level. Amit Tandon, Managing Director and Founder of proxy advisory firm Institutional Investor Advisory Services India Ltd, compared these efforts to “rearranging the deck chairs on the Titanic” in a Bloomberg news story.
Yet, not all analysts are convinced of the significance of this announcement. One analyst from a domestic brokerage firm suggested, “The timeline is one year, the capex, dividend, and debt factors remain unchanged… the exercise should help the promoters access some funds.”
It is essential to note that the proposed restructuring is subject to various approvals, including those from the National Company Law Tribunal (NCLT), lenders, and shareholders.
One of the key questions raised with the management pertains to the separation of debt and assets attributable to each demerged business. Top executives indicated that there might be some changes in this aspect but assured adherence to established rules for such a process.
This is not the first time Vedanta has proposed a substantial change in its corporate structure. As recently as 2016, the oil and gas business was merged with Vedanta. In 2020, Vedanta Resources considered delisting the India-listed entity but eventually abandoned the plan.
Ajay Agarwal, President-Finance for Vedanta, acknowledged that the company evaluates different corporate actions based on market expectations, stating, “The market no longer likes the conglomerate kind of business.” While he did not comment on the possibility of the promoters offloading their stake, he noted that the company remains open to considering investors if the opportunity aligns with the restructuring process.
Vedanta Limited engages in the extraction, manufacturing, and global distribution of essential metals, including zinc, iron ore, copper, silver, and aluminum. In addition to its metal operations, the company also manages power plants. Vedanta caters to clientele within the oil and gas industry.
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