Vedanta split is aimed at solving the debt crises and creating the value for business. However it remains to be seen if company will be able to overcome the debt challenges through restructuring and whether lenders will approve the plan
Vedanta has announced plans to demerge its business units into standalone “pure play” firms in order to unlock value and attract large-ticket investment in each of the businesses’ expansion and growth.
More than 90% of Vedanta Ltd’s profits are generated in India. Commodity demand is predicted to expand enormously as the government continues to create world-class infrastructure and attempts to meet aggressive objectives for the extremely mineral-intensive energy transition. The Government of India’s concentration on self-sufficiency will open up opportunities for fast expansion for Indian commodity enterprises.
Vedanta has a unique portfolio of assets among Indian and global companies, including metals and minerals such as silver, aluminium, zinc, chromium, copper, lead, nickel oil and gas, iron ore and steel; and power, including coal and renewable energy.
Vedanta is now planning to venturing into semiconductor and display glass manufacturing. Post demerger, each organization will have be in a better position for capital allocation growth plans. It would also allow global and Indian investors to participate in their favorite sector, hence extending the investor base for Vedanta assets.
Shareholders will have significantly more information about the performance of their assets. This openness will allow them to make better informed decisions and correctly analyse the success of each firm.
The rationale for the demerger is to simplify Vedanta’s corporate structure by including sector-focused independent firms.
Vedanta’s assets will provides global investors, including sovereign wealth funds, retail investors, and strategic investors, with direct investment possibilities in dedicated pure-play firms related to India’s incredible growth narrative.
By segregating Vedanta operations, Management hopes to ring fence risk inside each company and reduce the possibility of one business negatively effecting the others. This should result in a more stable and robust investment climate for the numerous businesses that will be established.
Vedanta credit stress has been highlighted by rating agencies.
Subsidiary wise debt of that large chunk of the debt that sits at Vedanta stand-alone of about INR43,000 crores. The corporate laws in India both the Company Act as well as the tax regulation provides very specific guidelines when you carry out any corporate action like demerger, how the debt needs to get allocated across various demerged entity as well as the resulting entity. Management will allocate the debt basis asset size of each of the demerged entity and the ability to service the debt.
Vedanta split is aimed at solving the debt crises and creating the value for business. However it remains to be seen if company will be able to overcome the debt challenges through restructuring and whether lenders will approve the plan.
Galactik Views