Delisting failure: Vedanta execs, promoters to mull future action on Monday

Debt restructuring, proposal to approach Sebi for extension could be points of meeting agenda

Vedanta Resources founder Anil Agarwal and the management committee of Vedanta Limited are scheduled to meet on Monday to discuss the next course of action, after Agarwal failed to delist the latter on Friday.

“A web conference has been scheduled between the management of Vedanta (Limited) and promoters of the company tomorrow (Monday) to discuss the next course of action. This is not going to be a board meeting,” Sunil Duggal, chief executive officer (CEO) at Vedanta Limited told Business Standard, without divulging the agenda of the meeting.

Meanwhile, sources close to the development said restructuring of the existing debt at Vedanta Limited could be on the agenda of the meeting.

As on June 30, 2020, Vedanta Limited had a consolidated net debt of Rs 58,600 crore of which only 13 per cent is in foreign currency. 

Besides, as retail investors faced technical glitches on Friday and were unable to submit their bids, the scheduled meeting could also mull approaching the regulator to seek an extension, they said.

“The main reason for delisting was to get access to cash at Cairn India and Hindustan Zinc, which would allow Vedanta to lower its debt. With the delisting attempt having failed, the company will have to focus back on the debt reduction strategy,” said a senior analyst with a rating agency.

Failure to delist Vedanta is likely to put further pressure on the finances of parent Vedanta Resources as the company is said to have arranged a $3.25 billion loan to fund the delisting. Part of this amount was parked in an escrow account, in accordance with the regulations.

“Funds raised for delisting will surely be an additional burden for Vedanta Resources. It is a difficult situation for the company,” said the analyst.

The failed delisting is the latest episode of discord between the London-based commodity conglomerate and institutional investors, particularly Life Insurance Corporation (LIC).

Some of the group’s run-ins with shareholders include the 2008 restructuring involving core mining assets; proposal to merge Sterlite Industries, Sesa Goa and three other unlisted group firms in 2012; discord over Cairn India’s decision to extend $1.25-billion loan to promoters in 2014; and the latest being delay in passing on dividend from Hindustan Zinc to Vedanta Limited shareholders.

Also, this is not the first time that Vedanta Resources failed in delisting. In 2001, the company’s attempt to delist Sterile Industries through a buyback offer had fallen through.

Meanwhile, on Friday, the reverse book building (RBB) that concluded, got only 1.25 billion bids against the minimum 1.34 billion required. Earlier, trends showed the group had crossed the line with 1.37 billion bids. However, nearly 120 million bids intriguingly got cancelled.

Even if Vedanta would have got the minimum bids, the most likely discovered price would have been Rs 320 — the price at which LIC, which holds 6.4 per cent stake, is said to have tendered its shares.

It would have been improbable that Agarwal would have accepted that price – nearly 4x of the book value — but at least he would have had another shot by exercising the option to make a counter offer.

Deven Choksey, managing director, KRChoksey Investment Managers, said the delisting failed as it was done to largely benefit the promoters at the expense of minority shareholders.

“The delisting would have succeeded if it was a win-win. However, the promoters would have gained more from it. They would have got to corner the entire dividend from cash-generating machines Cairn India and Hindustan Zinc. Also, the impairment of assets to bring down the book value didn’t go down well with the shareholders,” he said.

Market experts said the failed delisting will put downward pressure on the stock.

“The stock could hover around Rs 100 now. Most business verticals of the group are at the lower end of the business cycle,” said SP Tulsian, founder of SP Tulsian Investment Advisory. “The bad precedence left by the group over the years is still fresh in the memory of institutional investors,” he added.

The consensus analysts price target for the stock at present is Rs 150. About 11 analysts have ‘buy’ rating on the stock and only one has a ‘sell’ rating. The stock has doubled from its March lows of Rs 60 per share. It tanked nearly 12 per cent last week amid uncertainty over the fate of delisting.

It remains to be seen where the stock settles as the delisting equation is out of the way. The delisting bid also cost Vedanta its place in the bluechip-oriented Nifty50. In July, NSE replaced the stock with HDFC Life in the index, citing “proposed voluntary delisting”.