In a bid to simplify the corporate structure, the metal and mining conglomerate Vedanta plans to demerge its businesses into six different entities to unlock value and attract big-ticket investment for driving growth.
The board of Vedanta approved the formation of six separate listed companies under Vedanta Aluminium, Oil & Gas, Power, Steel, and Ferrous Materials, Base Metals, and Vedanta Limited.
For every share of Vedanta Ltd., investors will receive one share of each of the five new companies.
In addition, the board of Hindustan Zinc, a subsidiary of Vedanta, also announced plans to review its corporate structure for unlocking potential value and the intention to create separate legal entities for undertaking the Zinc & Lead, Silver, and Recycling businesses of HZL.
With listed equity and self-driven management teams, the demerger provides a platform for individual units to pursue strategic agendas more freely and better align with customers, investment cycles, and end markets, said the company.
Anil Agarwal, Chairman, Vedanta, said the demand for minerals, metals, oil, gas, and power will grow rapidly, and the newly formed companies are uniquely positioned to meet the rising demand and reduce reliance on imports.
Demerging the business units will unlock value and potential for faster growth in each vertical, he said.
The new companies will invest $5 billion over the next 10 years in their commitment to achieve net-zero carbon emissions by 2050 and net water positivity by 2030. The company has already secured 1.8 GW of renewable energy through power delivery agreements across group companies.
Manish Chowdhury, Head of Research at StoxBox, said the separation of entities would allow for more pure play themes from an investor perspective, allowing them to invest in different cycles at different times.
With each entity being run as an independent profit centre, it would eventually result in a more optimal capital structure, benefiting in the long run, he added.
Meanwhile, S&P Global Ratings has downgraded Vedanta Resources to CCC from B- on potential bond extensions.
The proximity of Vedanta Resources’ large bond maturity in January has increased the likelihood of the company undertaking a liability management exercise, said the rating agency on Friday.
Talks with bondholders
Vedanta Resources has initiated talks with bondholders to help address the company’s bond maturities of about $3 billion, including $1 billion in January.
While the company has partly addressed the maturity of the bond through the sale of about a 4 per cent stake in subsidiary Vedanta in August, the sources for the remaining funding gap, which the analysts estimated to be about $600 million,“ are not yet in place”.
Further funds to redeem the bond could depend on events such as the transfer of general reserves to retained earnings at subsidiary Hindustan Zinc or further asset sales, it said.