Vedanta to demerge business into six listed entities | Vedanta Demerger

Vedanta demerger : Vedanta Limited, a natural resources conglomerate owned by billionaire Anil Agarwal, has announced a major restructuring plan that will create six independent verticals through demerger of its underlying companies. The move is aimed at unlocking value and potential for faster growth in each vertical, as well as simplifying and streamlining the corporate structure.

Vedanta demerger : the six verticals

The six verticals that will be created through the demerger are:

  • Vedanta Aluminium: This will include the aluminium, alumina, and power businesses of Vedanta.
  • Vedanta Oil & Gas: This will comprise the oil and gas exploration and production businesses of Vedanta, including Cairn India.
  • Vedanta Power: This will consist of the thermal and renewable power generation businesses of Vedanta.
  • Vedanta Steel and Ferrous Materials: This will encompass the iron ore, pig iron, steel, and ferro alloys businesses of Vedanta.
  • Vedanta Base Metals: This will cover the copper, zinc, lead, silver, and nickel businesses of Vedanta.
  • Vedanta Limited: This will remain as the holding company of the group, with interests in mining, smelting, refining, and trading of metals and minerals.

How will the Vedanta demerger work?

The demerger is planned as a vertical split, which means that for every one share of Vedanta Limited, the shareholders will additionally receive one share of each of the five newly listed companies. The demerger is subject to regulatory and shareholder approvals, and is expected to be completed by March 2024.

The demerger will result in six separate listed entities, each with its own market capitalization, board of directors, management team, financial statements, dividend policy, and growth strategy. The shareholders will have the option to hold or sell their shares in any of the six entities as per their preference.

Why is Vedanta doing this?

According to Anil Agarwal, Chairman of Vedanta, the demerger is a strategic decision that will benefit all stakeholders. He said:

“By demerging our business units, we believe that we will unlock value and potential for faster growth in each vertical. While they all come under the larger umbrella of natural resources, each has its own market, demand and supply trends, and potential to deploy technology to raise productivity.”

He added that the demerger will also enable strategic partnerships with global players in each vertical, as well as attract more investors and talent to the group.

“I have asked all my advisors and my people can we have all products (businesses that Vedanta operates) or some products to be independent,” Agarwal said in a video message posted on YouTube. “If you have one share of Vedanta Ltd, you will have many shares of other companies and people will have an opportunity to invest in different areas. Some international companies want to invest in a particular area, they will get that opportunity.”, he added.

“Vedanta, in last two decades, has gone into the business which is more and more import substitute; very difficult for the entry into these areas. We have the business of oil and gas, the largest producer of aluminum, completely integrated power, copper, zinc, silver, lead, iron and steel, nickel, ferroalloys, semiconductor, display glass and more,” he said.

The demerger is also seen as a way to simplify and streamline the corporate structure of Vedanta, which has been complex and opaque for a long time. The group has faced several challenges in the past due to its debt burden, environmental issues, legal disputes, and governance concerns. The demerger is expected to address some of these issues and improve the transparency and accountability of the group.

How will Vedanta Demerger affect it’s stock price?

The announcement of the demerger has had a mixed impact on Vedanta’s stock price. On Wednesday, September 29, 2023, the stock fell over 6 per cent to hit its fresh 52-week low of Rs 210 on the Bombay Stock Exchange (BSE). This was partly due to a downgrade by Moody’s Investors Service on Tuesday, September 28, 2023. The rating agency downgraded Vedanta Resources’ corporate family rating (CFR) from Caa1 to Caa2 due to elevated risk of debt restructuring over the next few months. Moody’s maintained the negative outlooks about the company.

However, some analysts believe that the demerger will be positive for Vedanta in the long run. They expect that the demerger will unlock value for shareholders by creating separate entities with focused businesses and growth opportunities. They also anticipate that the demerger will reduce the debt burden of Vedanta Limited by transferring some of it to other entities. They also hope that the demerger will improve the corporate governance and environmental performance of Vedanta by making each entity more accountable and responsible.

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