Vedanta's JAL deal puts govt stake in HZL, Balco at risk: US short-seller

Viceroy Research warns DIPAM that Vedanta's planned Jaiprakash Associates acquisition could strain Hindustan Zinc and BALCO, partly owned by the government

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Vedanta’s proposal to acquire bankrupt Jaiprakash Associates Ltd (JAL) poses a financial risk to the Indian government, which holds stakes in Vedanta-owned Hindustan Zinc (HZL) and Bharat Aluminium Co. (BALCO), according to US-based short seller Viceroy Research.

 

Acquiring JAL will be an “unviable” transaction for Vedanta, said Viceroy in a letter to the Department of Investment and Public Asset Management (DIPAM) on September 19. Viceroy estimated JAL would generate a free cash flow shortfall of more than Rs 18,600 crore over five years, leaving India-listed Vedanta dependent on extracting money from its most profitable units.

 

A Vedanta spokesperson declined to comment.

 

HZL and BALCO accounted for 42 per cent of Vedanta’s free cash flow in FY25 but they contributed only 31 per cent of the revenue, the letter said. Viceroy alleged that both firms are being pushed into debt-funded dividends to support Vedanta’s parent, Vedanta Resources. “HZL alone has issued dividends far in excess of its earnings and has begun funding shortfalls through new debt.”

 

Vedanta separately had Rs 4,847 crore outstanding in statutory dues, taxes, and environmental liabilities that pose further risks to the exchequer, said Viceroy. Brand fees charged to HZL and BALCO after Vedanta’s demerger plan would worsen the cash drain, it said.

 

The letter was sent amid deteriorating ties between Vedanta and the government. The Ministry of Petroleum and Natural Gas recently objected to Vedanta’s demerger plan at the National Company Law Tribunal, and last week the government denied the company an extension of its Cambay basin oil and gas block, handing the asset to ONGC.

 

“Without intervention, public funds and government equity will underwrite an unviable private acquisition,” Viceroy wrote, urging DIPAM to act before further erosion of the two strategic assets.

 

JAL’s lenders are expected to vote on offers made by Vedanta and the Adani Group. Vedanta has offered Rs 12,505 crore to the lenders and Adani Rs 250 crore less.