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March 15, 2024

Vedanta’s Demerger Plan Faces Resistance from Shareholders and Creditors

Vedanta’s ambitious plan to demerge its various businesses into separate entities encounters obstacles as minority shareholders and creditors express concerns, reports indicate. The mining conglomerate’s proposal, announced on September 29, entails segregating five key businesses, including aluminium, oil and gas, and steel, into distinct listed entities.

Credit Sights, a FitchSolutions Company, highlights potential challenges in Vedanta Ltd’s demerger, citing probable resistance from minority shareholders and creditors. The lack of updates since the announcement in September 2023 adds to uncertainties surrounding the process.

Hindustan Zinc Ltd (HZL), a Vedanta Group subsidiary, faces hurdles in garnering the essential 75% shareholder approval for its proposed demerger. Disputes between Vedanta and the Centre, which holds a 29.5% stake in HZL, exacerbate the situation, reflecting broader complexities within the conglomerate.

Critics argue that the demerger may not effectively address Vedanta Resources Ltd’s (VRL) debt obligations while complicating its corporate structure. Despite potential benefits such as improved equity fundraising and simplified valuations, concerns persist regarding cash leakage through dividend upstreaming and the unclear apportionment of assets and debt liabilities among business units post-demerger.

VRL maintains a majority stake of 68.11% in Vedanta Ltd, which operates extensively in India across sectors including oil and gas, zinc, iron ore, aluminium, power, and copper.

The demerger plan, although aimed at enhancing operational focus and unlocking shareholder value, encounters skepticism amidst the intricate web of shareholder interests and debt restructuring challenges. Vedanta’s ability to navigate these hurdles will significantly influence the success and trajectory of its restructuring efforts.

Jhumpa Lahiri

Jhumpa Lahiri

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