Vedanta's demerger plan may face hurdles from shareholders, creditors

Vedanta's plan to demerge its businesses into separate entities could face hurdles from its minority shareholders and creditors, according to a report.

On September 29, the mining conglomerate announced plans to demerge five of its key businesses, including aluminium, oil and gas, and steel, into separate listed entities.

"We maintain our view that VEDL's (Vedanta Ltd's) planned demerger of its other businesses could face major hurdles from minority shareholders and/or creditors, which may delay or derail the deal. There have been few updates on the demerger progress ever since it was announced in September 2023," Credit Sights, a FitchSolutions Company, said in its latest report.

The report further said it will be a challenge for Hindustan Zinc Ltd (HZL) -- a Vedanta Group company -- to proceed with its proposed demerger as the company will be "unsuccessful" in getting the required 75 per cent shareholders' approval.

Vedanta and the Centre, which owns a 29.5 per cent stake in HZL, have been at loggerheads on a couple of matters related to Hindustan Zinc in the past year, the report said.

"In the first place, we felt that a demerger of VEDL will not fundamentally and significantly address VRL's (Vedanta Resources Ltd) ability to service its debt obligations, and will in fact complicate VRL's corporate structure, something the company has spent a decade simplifying.

"We acknowledge the demerger could improve VEDL's overall equity fundraising ability and valuations and simplify price discovery. We are cognisant that cash leakage via dividend upstreaming is still unchanged, and there is still a lack of clarity of how VEDL's share pledge on the January 2027 and December 2028 bonds will be after the demerger and on how assets and debt liabilities will be apportioned among the various business units," the report said.

VRL owns 68.11 per cent of its Indian subsidiary Vedanta Ltd, which has significant operations in oil and gas, zinc, iron ore, aluminium, power and copper in India.