Vedanta to demerge its business units into six listed companies - Here's what shareholders will get

Vedanta Ltd. has approved the demerger of its diversified businesses in a move to unlock significant value for shareholders. This will result in six separate companies being formed, and each will be listed.

The six independent listed entities are: Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Ltd.

Vedanta's demerger is planned as a vertical split. Shareholders of Vedanta Ltd. will get one share in each of the five newly listed entities, for every one share they hold in the currently listed entity.

The move is aimed at simplifying Vedanta's corporate structure with sector-focused indepdendent businesses and provides an opportunity to global investors, including sovereign wealth funds, retail investors and strategic investors.

Subject to approvals, the entire process is expected to be completed by FY25.

Vedanta Aluminium: Largest capacity in India with captive power and an alumina refinery. This business will continue to house coal and bauxite mines. This will also include the 51 percent stake the company owns in BALCO.

Vedanta Power: Will be one of India's largest private sector power generators.

Vedanta Base Metals: Will have a diversified portfolio of international base metal assets including ones in Tuticorin, Fujairah Gold, Silvassa and VZL.

Vedanta Oil & Gas: The Cairn business, which will be India's largest private sector crude oil producer.

Vedanta Steel & Ferrous: Will be one of India's largest private sector exporter of Iron Ore including Sesa Iron Ore, Sesa Coke, WCL (Liberia) and a 95.95 percent stake in Electrosteel Steel.

Vedanta Ltd.: The currently listed entity will house the manufacturing of LCD and Display glass, the semiconductor business, the stainless business and the stake in Hindustan Zinc.

“By demerging our business units, we believe we will unlock value and potential for faster growth in each vertical,” said Vedanta Chairman Anil Agarwal.

Addressing analysts at a concall, the company said, "We believe the demerger will open up the possibility for sovereign wealth funds and strategic investors to invest in our separate companies."

The entire restructuring process is expected to take 12-15 months.

Shares of Vedanta had ended 7 percent higher on Friday in what was its best single-day performance in 2023.

Earlier in the day, Vedanta's subsidiary Hindustan Zinc announced that it has authorised the committee of directors to evaluate appropriate corporate restructuring exercise to unlock shareholder value. You can read that detailed story here.

Vedanta holds a 64.92 percent stake in Hindustan Zinc as of the June quarter shareholding pattern.

Market expert Prakash Diwan called the move bold and ambitious; a move that could unlock a lot of value, and give the company an opportunity to get out of non-core businesses like iron and steel.

It also throws up fund-raising options for the parent company, which will help in meeting upcoming debt obligations, he argued, saying, "if this can be done and there is some money that the parent can get out of this, it yields decent kind of returns to the parent. It will also help it tide over this debt challenge it is facing. In FY24, the debt is not such a big issue; it is FY25 that the market is worried about.”

Rakesh Arora of Goindiastocks.Com said the move, while great for promoters, does not give retail shareholders much to look forward to. “This structure which Vedanta has proposed leaves little bit wanting from the retail investors' point of view... Had they distributed the stock of Hindustan Zinc also to shareholders, there would have been a reasonable value unlock. However since Hindustan Zinc is now stuck into Vedanta Limited, there is no major value unlock for retail shareholders,” he said.

Shares of the Anil Agarwal-led mining conglomerate fell to a 31-month low earlier this week following Moody's Investors Service's downgrade of some of the bonds issued by its parent company Vedanta Resources Ltd. and its wholly-owned subsidiaries.

Vedanta's parent company faces repayment of notes worth nearly $2 billion in the financial year 2025. Including these bonds, the company is facing debt repayment worth $3.6 billion in the next financial year, according to Kotak Institutional Equities.