Anil Agarwal’s Vedanta Resources, the London-based mining and metals conglomerate owned by Indian billionaire Anil Agarwal, has sold a 2.5% stake in its Indian subsidiary Vedanta Ltd. for Rs 1,737 crore ($237 million) to Finsider International, a subsidiary of US-based investment firm GQG Partners.
The stake sale, which was announced on Friday, is part of Vedanta Resources’ debt restructuring plan, as it aims to reduce its net debt of $6.6 billion as of December 2020. The company said that the proceeds from the sale will be used to repay its debt obligations and improve its liquidity position.
Why Anil Agarwal’s Vedanta Resources is selling its stake in Vedanta Ltd
Vedanta Resources, which owns 55.1% of Vedanta Ltd., has been facing financial stress due to the impact of the COVID-19 pandemic on its businesses, especially in the oil and gas, aluminum, and copper sectors. The company reported a net loss of $1.3 billion for the fiscal year ended March 2020, compared to a net profit of $644 million in the previous year.
The company also faced a setback in its attempt to delist Vedanta Ltd. from the Indian stock exchanges last year as it failed to garner the required number of shares from the public. The delisting offer, which was launched in October 2020, was aimed at simplifying the group’s corporate structure and giving Vedanta Resources more control over its cash-rich Indian arm.
However, the offer received a lukewarm response from the investors, who were unhappy with the low price of Rs 87.5 per share offered by Vedanta Resources. The company needed to acquire 134.1 crore shares, or 90% of the total share capital, to successfully delist Vedanta Ltd., but it could only get 125.5 crore shares, or 87.5% of the total share capital, by the end of the offer period.
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As a result, Vedanta Resources had to abort the delisting process and return the shares tendered by the shareholders. The failure of the delisting offer also increased the pressure on Vedanta Resources to repay its debt, as it had raised $3.15 billion from various banks to finance the offer.
How Vedanta Resources is restructuring its debt
To ease its debt burden, Vedanta Resources has been taking various steps to restructure its debt and improve its cash flow. Some of these steps are:
- Raising funds from the market: In January 2021, Vedanta Resources raised $1.4 billion through issuing bonds with a coupon rate of 13.875% and a maturity of four years. The company said that it will use the proceeds to repay its existing debt and for general corporate purposes. The bond issue was oversubscribed by more than eight times, indicating a strong investor demand for Vedanta Resources’ debt.
- Selling non-core assets: In February 2021, Vedanta Resources sold its 38.8% stake in Cairn India Holdings, a subsidiary of Vedanta Ltd. that holds the group’s oil and gas assets, to Vedanta Ltd. for $3.8 billion. The transaction, which was done at a discount of 20% to the market value, helped Vedanta Resources reduce its inter-company debt and increase its cash balance.
- Selling stake in Vedanta Ltd.: The latest stake sale of 2.5% in Vedanta Ltd. to Finsider International is another step by Vedanta Resources to raise funds and lower its debt. The company said that it will continue to evaluate various options to monetize its stake in Vedanta Ltd., subject to market conditions and regulatory approvals.
The stake sale of Vedanta Resources to Vedanta Ltd. has mixed implications for the Indian company and its shareholders. On one hand, it reduces the possibility of a fresh delisting offer by Vedanta Resources in the near future as it lowers its shareholding in Vedanta Ltd. This may disappoint some investors who were hoping for a higher price from Vedanta Resources in the event of a delisting.
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On the other hand, it also increases the free float of Vedanta Ltd. which may improve its liquidity and market valuation. The stake sale also signals that Vedanta Resources is confident about the prospects of Vedanta Ltd., as it has sold its stake at a premium of 9.9% to the closing price of Vedanta Ltd. on Thursday. The stake sale may also attract more institutional investors to Vedanta Ltd., as Finsider International is a reputed investment firm with a long-term horizon.
The stake sale may also have a positive impact on the corporate governance and environmental, social, and governance (ESG) standards of Vedanta Ltd., as it reduces the influence of Vedanta Resources, which has faced several controversies and allegations in the past. For instance, Vedanta Resources was accused of violating human rights and environmental norms in its operations in Zambia, South Africa, and India. The company was also involved in a legal dispute with the Indian government over the retrospective tax demand of $1.4 billion on its acquisition of Cairn India in 2011.
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Conclusion
The stake sale of Vedanta Resources to Vedanta Ltd. is a strategic move by the former to restructure its debt and improve its financial health. The move also reflects the confidence of Vedanta Resources in the future growth of Vedanta Ltd., which is one of the largest and most diversified natural resources companies in India. The stake sale may have both positive and negative implications for Vedanta Ltd. and its shareholders, depending on their expectations and perspectives. However, the stake sale is unlikely to have any major impact on the operational performance and business outlook of Vedanta Ltd., which remains strong and resilient despite the challenges posed by the COVID-19 pandemic.
Frequently Asked Questions (FAQs):
Q: Why did Vedanta Resources sell a stake in Vedanta Ltd.?
Ans. Vedanta Resources sold a 2.5% stake in Vedanta Ltd. as part of its debt restructuring plan. The London-based conglomerate, owned by Indian billionaire Anil Agarwal, aims to alleviate its net debt of $6.6 billion (as of December 2020) and enhance liquidity through strategic stake sales.
Q: Who acquired the stake in Vedanta Ltd. from Vedanta Resources?
Ans. The 2.5% stake in Vedanta Ltd. was acquired by Finsider International, a subsidiary of US-based investment firm GQG Partners.
Q: What is the intended use of the proceeds from the stake sale?
Ans. Vedanta Resources plans to utilize the proceeds from the stake sale to repay its debt obligations, contributing to its debt restructuring efforts.
Q: What challenges has Vedanta Resources faced leading to this stake sale?
Ans. Vedanta Resources has encountered financial stress, exacerbated by the impact of the COVID-19 pandemic on its businesses, particularly in the oil and gas, aluminum, and copper sectors. The company reported a net loss of $1.3 billion for the fiscal year ending March 2020.
Q: How has Vedanta Resources been restructuring its debt?
Ans. Vedanta Resources has undertaken various steps to restructure its debt, including raising funds from the market through bond issuances, selling non-core assets, and strategically divesting stakes in Vedanta Ltd. to lower its debt burden.
Ans. The stake sale reduces the likelihood of a near-term delisting offer by Vedanta Resources and increases Vedanta Ltd.’s free float, potentially improving liquidity and market valuation. It also signals confidence in Vedanta Ltd’s future growth but may impact corporate governance and ESG standards due to reduced influence from Vedanta Resources.
Q: How does this stake sale fit into Vedanta Resources’ broader financial strategy?
Ans. The stake sale is part of Vedanta Resources’ broader strategy to streamline its debt, improve cash flow, and strengthen its financial position. It aligns with the company’s efforts to navigate financial challenges and enhance its resilience.
Q: What is Vedanta Ltd.’s current operational performance and business outlook?
Ans. Despite the challenges posed by the COVID-19 pandemic, Vedanta Ltd. remains strong and resilient. The stake sale is unlikely to have a major impact on the company’s operational performance and business outlook, reflecting its ability to withstand challenges in the market.
