Vedanta Plan to Demerge Aluminum, Steel, and Oil Businesses: What You Need to Know

In a significant development that could reshape the landscape of India’s industrial sector, Vedanta Ltd., led by business tycoon Anil Agarwal, is reportedly on the cusp of announcing a demerger plan. According to a recent report by Bloomberg, Vedanta is contemplating the separate listing of its core businesses, including aluminum, oil and gas, iron ore, and steel, on the stock market. This strategic move is expected to not only optimize the company’s operations but also alleviate its substantial debt burden.

While the formal announcement is yet to be made, the restructuring plan has already been communicated to Vedanta’s lenders, setting the stage for a transformational shift in the company’s corporate structure.

Sources close to the development suggest that Vedanta Resources, the parent company, will continue to serve as the holding entity. However, it’s crucial to note that discussions regarding the specifics and the timeline of this demerger are still ongoing, and no final decisions have been reached.

This prospective demerger aligns with Anil Agarwal’s recent statements, wherein he expressed his intention to consider separate listings for various businesses within Vedanta Ltd. These businesses span a wide spectrum, ranging from metals and mining to oil and gas, constituting a significant portion of India’s industrial landscape.

The timing of this announcement coincides with a recent setback for Vedanta Ltd. On the heels of Moody’s Investors Service downgrading the rating of Vedanta Resources Ltd., Vedanta Ltd.’s shares tumbled by nearly 7% in the stock market. Moody’s decision to downgrade Vedanta Resources was primarily attributed to the heightened risk of debt restructuring in the near future.

The rating agency lowered Vedanta Resources’ rating to Caa2 from Caa1, concurrently maintaining a negative outlook. This decline in credit quality is attributed to the company’s weak liquidity, driven by substantial refinancing needs and interest expenses amid tightening global capital market conditions.

In the past year, Vedanta Ltd.’s shares have declined by over 20%, resulting in a market valuation of approximately ₹77,670 crore. The urgency to raise funds has intensified for Vedanta Resources due to ongoing rating downgrades and growing concerns about meeting its debt obligations.

Earlier this year, Anil Agarwal attempted to reduce the group’s massive $7.7-billion debt by facilitating a $2.98 billion deal in which Hindustan Zinc Ltd., a Vedanta Ltd. subsidiary, would acquire some of the parent company’s zinc assets. However, this move faced opposition from the Central government, which holds nearly 30% stake in Hindustan Zinc.

As the Indian industrial landscape braces for this potential restructuring, the eyes of investors and stakeholders remain fixed on Vedanta Ltd.’s forthcoming announcement. The demerger of its key businesses could signify a turning point not only for the company but also for the broader Indian economy, shaping the future of its aluminum, steel, and oil sectors. Stay tuned for updates on this evolving story as it unfolds.