The stock climbed as much as 5.1% in Mumbai, before paring that gain. Both Vedanta and unit Hindustan Zinc had surged on Friday, ahead of the announcement. At least four brokers including CLSA and IIFL have upgraded their recommendation on Vedanta since then.
That’s not been enough to dispel worries over the looming debt repayments that Vedanta’s parent company must make over the next two years.
“The demerger might help in the long term,” Sameer Kalra, founder of Target Investing in Mumbai, said. “But in the near term, the debt repayment and restructuring are the main issues. If they continue to face problems, then the next couple of quarters will be very difficult to navigate.”
Vedanta Ltd is due to be split into six listed entities: aluminum; base metals; power; steel and ferrous materials; oil and gas; and an incubator for new businesses including semiconductors. The group hopes it can attract investors directly to key businesses and improve the valuation of its component parts — while the shake-up would also make it easier to sell some assets to reduce Vedanta’s debt load.
However, a restructuring on this scale will take time, given required regulatory, government and shareholder approvals. Vedanta has said it expects to complete the demerger in the financial year ending March 2025.
Meanwhile Agarwal’s headaches will continue — Vedanta Resources, parent of Vedanta Ltd, has $2 billion of bond repayments due in 2024 and another $1.2 billion in 2025. The group’s proposal to restructure payments on the bonds has faced some investor opposition.
“If we get good terms, we will refinance,” Agarwal told CNBC TV18 in an interview broadcast on Tuesday. “Both options are there. Either refinancing or making payment from ourselves.”
In response to the presenter’s question as to whether the finances were lined up, he responded “absolutely.”
Vedanta Resources’ dollar debt due in March 2025 fell 1.5 cents on Tuesday, poised for its steepest daily drop since Aug. 31, according to prices compiled by Bloomberg. A note due in April 2026 fell by 1.6 cents.
Credit negative
“Fundamentally, we do not believe that this reorganization addresses Vedanta’s debt obligations,” CreditSights analysts Lakshmanan R and Jonathan Tan Jun Jie said in a note, arguing there would be a “modest credit negative impact” for bondholders and execution risk.
“While we see the business reorganization proposal as a positive for Vedanta’s equity story, we are not that positive from a credit perspective,” they said.
Vedanta has yet to provide details on how the group’s debt will be distributed under the new structure, or how shares currently being used to secure debt will be treated. According to stock exchange data, the group has pledged virtually all of its majority holding in both Vedanta Ltd. and Hindustan Zinc Ltd.
Deven Choksey, managing director of brokerage KRChoksey Shares & Securities Pvt, said the demerger could help appease some lenders — but even sale options to ease the crunch remained limited.
“The cash generating businesses cannot be sold, so the only choice is to sell those that are consuming a higher amount of capital, such as steel, iron ore, and power,” he said by phone from Mumbai.
Before the announcement of the split, Vedanta had previously said it was reviewing its steel business for options including a possible sale.
That sale of that business will help reduce the group’s debt load, Agarwal told CNBC on Tuesday. “We have a phenomenal response for our steel and iron sale,” he said.
