Vedanta Demerger: 5 Key takeaways

Vedanta announced the demerger of its business to create 6 different entities on September 29.  The newly created entities will be Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Materials and Vedanta Ltd.

In a conference call following the announcement of the demerger, the company’s management spoke about the reason for the demerger,  the dividend policy and debt allocation for the demerged entities.

• Objective of restructuring to attract strategic investors

Vedanta’s rationale behind the demerger was that it would simplify the corporate structure and provide direct investment opportunities to global investors. “Once demerged, each independent entity will have greater freedom to grow to its potential and true value via independent management, capital allocation and niche strategies for growth,” said the management in the de-merger conference call.

It further said that the demerger will give global and Indian investors the potential to invest in their preferred vertical, broadening the investor base for Vedanta assets.

• Debt allocation according to company law standards

The management also said it will follow the Companies Act for allocating debt to the demerged entities.

• Nothing changed for pledged shares

“Pledged shares in Vedanta and Hindustan Zinc will require lender approval to go ahead with restructuring, but not an onerous task”, said the management signalling that there won’t be any change in the status of the pledged shares.

Read more: Meet Anil Agarwal, the man behind Vedanta’s mega ambitious demerger

• No impact for cash flow as well

The management also added that the demerger won’t have an impact on cash flow. “We view the transaction to be credit-enhancing. “We view the transaction to be credit enhancing. Nothing changes from the perspective of cash flow, dividend or otherwise”, the management added.

Also read: Vedanta aims to attract sovereign wealth funds through demerger, eyes debt rationalisation

• Dividend Policy according to existing policy

Regarding the dividend policy, the management said “Each company may consider the existing dividend policy and if it fits the respective company, the board will take a call accordingly”.

Also read: S&P Global downgrades Vedanta Resources to CCC on potential bonds extension