Vedanta debt to be divided among demerged firms in ratio of assets

Vedanta is in advanced stages of engagement with its lenders on the issue, and the process has proceeded smoothly, sources familiar with the matter said

Mining conglomerate Vedanta is on track for the demerger of its key businesses, including aluminium, into separate listed companies and allocation of debt across the demerged entities would be done in proportion to their assets, sources familiar with the matter said.

Vedanta is in advanced stages of engagement with its lenders on the issue, and the process has proceeded smoothly, they said.

There is clarity about the allocation of debt across entities after the demerger. "The debt will get divided amongst the resulting demerged entities in the ratio of assets getting allocated to them as per the prescribed rules and regulations," a senior company official said at a recently concluded investor event.

Citing the example of Vedanta Aluminium, the official said the debt that would get allocated to the company would be in direct proportion to the book value of the assets held by it. This is to ensure that the transaction is tax-neutral.

Vedanta had in September last year announced the creation of demerger of metals, power, aluminium, and oil and gas businesses to unlock potential value. After the exercise, six independent verticals - Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Limited - will be created. For every share of Vedanta, shareholders will receive one share of each of the five newly listed companies.

After the demerger, the businesses of Hindustan Zinc as well as the electronics business will remain with Vedanta Limited. Immediately after obtaining the NOCs, the application will be moved to NCLT.

SBICAPs has been onboard to represent lenders with respect to debt allocation and they are hopeful to obtain the NOCs at the earliest, sources said. In parallel to the demerger, Vedanta is also undertaking a deleveraging programme to cut debt at the group level by $3 billion in the next three years, taking its net debt level below $9 billion.

The deleveraging is expected to be funded largely by robust internal cash flows, further supported by proceeds of strategic asset sales and potential equity partnerships.

"The demerger is expected to simplify the Group's corporate structure with sector-focused independent businesses. Each of our businesses is at a global scale hence the board decided to go for a demerger. We intend to build a corporate structure with asset ownership and entrepreneurship mind-set, where each company would chart out its growth trajectory.

"The demerger will give global investors, including sovereign wealth funds, retail investors, and strategic investors, direct investment opportunities in dedicated pure-play companies. With listed equity and self-driven management teams, the demerger would also provide individual units a platform to pursue strategic agendas more freely and better align with customers, investment cycles, and end markets," Vedanta had said in its demerger announcement.