Vedanta’s plan to demerge its businesses into separate entities could face hurdles from its minority shareholders and creditors, according to a report. The mining conglomerate announced plans to demerge five of its key businesses, including aluminium, oil and gas, and steel, into separate listed entities. However, the report suggests that the demerger could be delayed or derailed due to opposition from minority shareholders and/or creditors.
Credit Sights, a FitchSolutions Company, stated in its latest report that Vedanta Ltd’s planned demerger could face major obstacles from minority shareholders and/or creditors, which may result in a delay or failure of the deal. Since its announcement in September 2023, there have been few updates on the progress of the demerger.
The report also highlights the potential challenges for Hindustan Zinc Ltd (HZL), a Vedanta Group company, in proceeding with its proposed demerger. The company is expected to be unsuccessful in obtaining the required 75 percent approval from shareholders.
There have been ongoing disagreements between Vedanta and the Centre, which owns a 29.5 percent stake in HZL, regarding matters related to Hindustan Zinc in the past year.
The report raises concerns about the demerger’s impact on Vedanta Resources Ltd’s ability to service its debt obligations. It suggests that the demerger may complicate the corporate structure of Vedanta Resources Ltd, which has spent time simplifying its structure over the past decade.
While the demerger may improve Vedanta Ltd’s equity fundraising ability and valuations, it does not address the issue of cash leakage via dividend upstreaming. There is also a lack of clarity regarding how Vedanta Ltd’s share pledge on certain bonds will be affected by the demerger, as well as how assets and debt liabilities will be allocated among the different business units.
Vedanta Resources Ltd owns 68.11 percent of its Indian subsidiary Vedanta Ltd, which has significant operations in oil and gas, zinc, iron ore, aluminium, power, and copper in India.
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