Billionaire metals and mining magnate Anil Agarwal on May 11 announced a proposal to delist Vedanta from the Indian stock exchanges with promoter group Vedanta Resources making an offer to buy out the 48.94 percent non-promoter shares at Rs 87.5 per share, which represents a premium of Rs 9.9 percent over its May 11 closing market price.
The promoter group holds 50.14 percent stake in the firm as per the latest shareholding pattern available on stock exchanges. The Vedanta stock had surged by over 12 percent at the end of trading hours on May 11. The current market capitalisation of Vedanta based on its May 11 closing price stands at Rs 33,194 crore.
Rationale for the deal - The Vedanta group has been pursuing a process of corporate simplification for several years, including the merger of Sterlite with Sesa Goa to form Sesa-Sterlite (subsequently renamed Vedanta) in 2012, the merger of Cairn India with Vedanta in 2016, and the delisting of Vedanta Resources (subsequently renamed Vedanta Resources) in 2018.
- The group believes that a delisting of Vedanta is the next logical step in this simplification process and will provide it with enhanced operational and financial flexibility in a capital intensive business. The group maintains its strategic priority of attaining leadership in diversified natural resources, underpinned by growth, while maintaining a flexible capital structure.
- The proposed delisting offer will provide public shareholders of Vedanta an opportunity to realise immediate and certain value for their shares at a time of elevated market volatility. The price will be determined in accordance with the reverse book building mechanism.
- The proposed delisting will align the group's capital and operational structures, streamline the process of servicing its financing obligations and significantly improve a range of important credit metrics. As a result, the transaction is expected to support an accelerated debt reduction programme in the medium term and, in turn, support its highly attractive longer-term growth pipeline.
Delisting of Vedanta Resources Previously, in July 2018, Agarwal had unveiled plans to delist Vedanta Resources from the London Stock Exchange, saying it no longer sees the London listing as necessary to access capital. Later, on October 1, he concluded the deal after a successful buyout of the company's shares.
Vedanta Resources was the first Indian company to list in London in 2003 in a $644 million offering. Agarwal had stated previously that the buyout of the London listing was intended to simplify the company's structure and claimed that the liquid Indian market meant that the need for a separate London listing was no longer critical.
On March 24, Moody’s Investors Service placed the rating of Vedanta’s parent company -- Vedanta Resources -- under review for downgrade, saying the firm remains vulnerable to falling oil and metal prices as well as shrinking demand following the outbreak of novel coronavirus, or COVID-19. In a statement, Moody's said it has changed the ratings outlook for Vedanta to ratings under review from stable.
The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and declining asset prices are creating a severe and extensive credit shock across many sectors, regions and markets, the agency said. "The combined credit effects of these developments are unprecedented. Exploration and production (E&P), metals and mining are among the sectors most significantly affected by the shock given their sensitivity to consumer demand and sentiment,” it added.
Why do companies opt for delisting? Companies usually opt for delisting when they seek to expand or restructure, are acquired by others, or the promoters want to raise their stake. To voluntarily delist, a company normally offers shareholders a premium to the price at which the shares are being traded on the exchange.
JP Morgan is the financial advisor and Latham & Watkins and Khaitan & Co are acting as legal advisors in connection with the offer.
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