Vedanta split unlikely to help parent's near-term debt crisis: Analysts

Metals-to-oil conglomerate Vedanta Ltd's move to split into six separate units in the next 15 months may not immediately help its UK-based parent meet a looming payment deadline for about $4.2 billion rupees of debt, at least four brokerages said.

The billionaire Anil Agarwal-led company on Friday reversed an earlier strategy of taking the entire company private, saying it will, instead, spin off into various commodity-focused companies looking to shore up financials after a string of poor results.

The conglomerate's parent, Vedanta Resources, is battling a host of rating downgrades triggered by worries over outstanding dues - $6.4 billion as of May - according to the company.

 

"The demerger does not solve the debt concern of parent company Vedanta Resources, which must repay about $4.2 billion in debt by FY25," Nuvama analysts said in a research note, saying the split would not improve Vedanta's credit profile.

Agarwal's attempt in 2020 to privatise Vedanta did not materialise as investors found the de-listing price to be too low. His latest attempt to trim down the holding company's dues by getting its unit, Hindustan Zinc, to buy some of the firm's zinc assets also did not succeed due to opposition from the Indian government, which is a minority shareholder.

"As it will take time to complete demerger, (the process) won't be helpful for the parent company to meet debt obligation. It has insufficient revenues, and hence the likely course of action is refinancing or a stake-sale in subsidiaries," Centrum Broking said in a note.

Analysts also said some of the company's non-core businesses not generating enough cash were likely to be sold after the demerger.

Vedanta shares, which have lost about one-fourth of its value this year, were up 4.5% to 232.80 rupees on Tuesday. The metals index is up about 1% so far this year.

 

(Reporting by Sethuraman NR in Bengaluru; Editing by Nivedita Bhattacharjee)