Vedanta secures lenders’ nod for mega demerger, aims to unlock value

navVedanta Ltd, led by billionaire Anil Agarwal, has secured approval from 75% of its lenders, including the State Bank of India (SBI), for its proposed mega demerger.

The company on Tuesday said that it will present the demerger scheme to the National Company Law Tribunal (NCLT), a critical step towards splitting Vedanta into six independent listed entities.

Vedanta will now await approval from the tribunal and other regulators for the demerger.

Mint had first reported on 2 May that a group of key lenders had ended a nearly seven-month deadlock by endorsing the demerger plan, which aims to separate the group’s flagship operations.

Navigating debt

The demerger was delayed due to the need to negotiate the distribution of $7 billion in debt owed to creditors in India among the new entities.

Vedanta’s consortium of lenders, led by the State Bank of India (SBI), includes major financial institutions such as Bank of Baroda, Punjab National Bank, ICICI Bank, Axis Bank, Canara Bank, Indian Overseas Bank, Yes Bank, Union Bank of India, IDFC First Bank, Bank of Maharashtra, and Kotak Mahindra Bank, according to ratings agency Crisil.

Over the past year and a half, Vedanta’s debt situation has been a central focus in all its key business decisions.

Aditya Welekar, a metals and mining analyst at Axis Securities, highlighted in a report on 18 June, “Vedanta Resources Ltd (the parent company) has de-levered its balance sheet by $3.7 billion to $6 billion in the last two years.”

The company managed to reprofile $4 billion in near-term bond maturities through a successful liability management exercise earlier this year, as per the report.

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Previously, Vedanta had projected a $3 billion debt reduction at the parent level by FY27, to be achieved through brand fees and dividends from subsidiaries, without increasing leverage at Vedanta Ltd. The group aims for an operating income of $6 billion in FY2025 and $6.5-7.5 billion in FY26-27, which, according to an Axis report, will contribute to deleveraging alongside strategic actions such as asset sales.

“Debt split across demerged entities will be a key monitorable to watch out for going ahead,” said Welekar in the report.

Demerger and market impact

The demerger of Vedanta, which boasts a market capitalization of ₹1.74 trillion, is set to be one of the largest in the listed space. Previously, the separation of Jio Financial Services from Reliance Industries Ltd, completed last year, was the largest of its kind.

“As an organization dedicated to supporting the dream of an Atmanirbhar Bharat in natural resources, Vedanta’s demerger will create sector focused entities, aligned with India’s global leadership goals in critical minerals, energy security as well as renewables and technology sectors,” said the company.

Vedanta believes the demerger will simplify its corporate structure, creating independent businesses that offer global investors direct investment opportunities in pure-play companies linked to India’s growth.

At Vedanta’s annual general meeting earlier this month, Agarwal emphasized, “Demerger of our businesses will lead to the creation of six strong companies, each a Vedanta in its own right. This will unlock massive value. Each demerged entity will chart its own course but will follow Vedanta’s core values, its enterprising spirit, and global leadership.”

Post-demerger, Vedanta’s existing businesses will be organized under six independent companies: Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Ltd.

The demerger, the company said, is planned as a simple vertical split, with shareholders receiving one share of each of the five newly listed entities for every share of Vedanta Ltd. they hold.

Vedanta’s shares have been on an upward trajectory for a while now, particularly following the demerger announcement last year. As of 30 June, Vedanta’s five-year returns stood at 276%, with an average accumulated dividend yield of 65% over the same period.

The company has invested at least $35 billion in India and is currently focusing on expansion plans that include 50 strategic growth projects. Vedanta is the largest aluminium producer and the sole producer of zinc and silver in India, besides being one of the country’s largest power generators. The company also engages in the production of nickel and operates in the chromium, copper, and traditional ferrous verticals, including iron ore and steel.

Vedanta tax dispute

In a separate development, Vedanta, on 30 July, disclosed that it has received an assessment order from the Income Tax department, demanding ₹1289.10 crore in taxes and interest for the assessment year 2020-21.

“The company has identified a computational error in this demand determination and will file a rectification request before jurisdictional assessing officer,” said the company in an exchange filing.

After the rectification, the company said, the expected demand will be nil in this case.

Also read | Vedanta’s cost cut push is good, but some concerns linger

“Additionally, the underlying additions / disallowances are substantially similar to those raised in previous years, where the company has already secured favourable rulings from the Income Tax Appellate Tribunal,” said Vedanta, adding that the company will file an appeal and corresponding stay application with the Income Tax Appellate Tribunal against the latest assessment order shortly.