Vedanta Demerger – Will it Survive the Debt Challenges?

Merging or demerging a company can have a big impact on its stocks, and with the recent news of the Vedanta demerger, we can see three different reactions among people.

First, some are happy, as the stock went up by 4% on the day they announced this, and it was their best day of 2023.

Second, a few of them weren’t happy with the news, as it could lead to many complications, and there might be a possibility that the stock prices would drop even more. So far this year, the stock has already fallen by over 25%.

Third remain those who are just sticking to Vedanta for the sake of dividends, which is 45.6%.

Well, it doesn’t end here; there are a few more things you need to know about the Vedanta Demerger

This idea of having different listed entities came before in November 2021 as well; however, they did not go through with the plan.

And now, they announced to demerge into six separate companies, which means that, if you are a shareholder, for every 1 share of Vedanta Limited, you will additionally receive 1 share of each of the 5 newly listed companies.

What would the demerged businesses look like?

Vedanta Aluminium | Operating Profit – Rs. 3,257 crore

This company will handle the aluminium business and a 51% stake it holds in BALCO.

Vedanta Oil & Gas | Operating Profit – Rs. 5,205 crore – Cairn India

Vedanta Power | Operating Profit – Rs. 294 crore

Vedanta Power will house the Independent Power Plants at Vedanta, anchored by Talwandi Sabo Power Limited (TSPL, a wholly-owned subsidiary of Vedanta Limited).

Vedanta Steel & Ferrous Metals | Operating Profit – Rs. 770 crore

This entity will house domestic iron ore operations, Liberia assets, and ESL Steel Ltd.

Vedanta Base Metals | Operating Profit – Rs. 1,243 crore

Handling the international copper and zinc business.

Vedanta Ltd | Operating Profit – Rs. 13,917 crore

The current listed company will hold a 64.92% stake in Hindustan Zinc, along with the upcoming semiconductor and display businesses and the stainless steel business.  A significant part of Vedanta’s operating profit in FY 2023 came from Hindustan Zinc and the oil and gas business.

The demerger is expected to be completed by the financial year ending in March 2025.

What about the pending payments?

Vedanta Resources has pending payments of over $4 billion from now until FY25. 

As per Bloomberg data, Vedanta Resources Ltd. has bond repayments of $3.2 billion in the next 2 years. About $2 billion of notes are to be redeemed in 2024, with half of it due as early as January and another $1.2 billion in 2025.

To help with bond repayments, they’re talking to lenders like Cerberus Capital Management for a $1 billion private loan. the plan to split Vedanta Ltd. has made this effort a little complicated.

Since Vedanta Resources also controls Hindustan Zinc, its share price could be affected too.

On top of their debt issues, in June, the SEBI imposed a penalty of Rs. 30 lakh on Vedanta for making false representations through a press release and was said to make the payment within 45 days of the order.

What do the experts and analysts have to say about this?

Analysts believe that the newly listed demerged companies could attract strategic investment and improve competencies.

They see it as a positive long-term impact that will give flexibility to the group, giving them the choice of commodity they want to invest in. The parent company would also have the option to liquidate fully or partially particular assets to manage their debt repayments.

This move is seen as an attempt to solve Vedanta’s debt issue and offer flexibility to unlock value for investors, either by liquidating a particular asset or bringing in strategic investors.

However, it is quite visible that the demerger announcement has also raised questions about the investment potential of Vedanta’s shares. It makes it crucial for investors to assess the company’s future prospects and strategic direction before making any investment decisions.

What do you think about the Vedanta Group and it’s demerging?

Written By Shivani Singh

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