Vedanta's demerger proposal may receive resistance from shareholders and creditors: Research firm

Vedanta's proposal to split its businesses into distinct entities may encounter resistance from minority shareholders and creditors, as per a report. On September 29, 2023, the mining and metal giant unveiled intentions to separate five crucial sectors, such as aluminium, oil and gas, and steel, into individual listed companies.

CreditSights, a FitchSolutions Company, revealed in its latest report by stating, "We maintain our view that 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 since it was announced in September 2023."

According to the report, Hindustan Zinc Ltd (HZL), a subsidiary of the Vedanta Group, may face hurdles in advancing its proposed demerger due to anticipated difficulties in obtaining the necessary 75 per cent shareholder approval, potentially leading to an unsuccessful outcome.

Vedanta holds 64.92 per cent, and Govt. of India holds 29.54 per cent, stake in Hindustan Zinc Ltd. and the two parties have disagreed on several issues concerning Hindustan Zinc over the past year, as stated in the report.

The report added, "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 cognizant that cash leakage via dividend upstreaming is still unchanged, and there is still a lack of clarity on 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."