Anil Agarwal’s Vedanta pledges nearly entire stake in Hindustan Zinc

Anil Agarwal-led Vedanta has pledged nearly all its shareholding in subsidiary Hindustan Zinc (HZL), as per data available with the stock exchanges. The metal and mining major pledged an additional 13.94 crore shares or 3.3% of the total equity on May 22 in favour of Axis Trustee Services Ltd. With this, the total encumbered equity share in its subsidiary stands at 64.51%. Vedanta owns a 64.92% stake in zinc mining firm, HZL.

Vedanta has reportedly pledged shares as collateral for loans taken by the company or the group. This is the third time this fiscal when the promoter has pledged its shares in HZL to take loans against it. On April 28, 2023, the Mumbai-headquartered firm pledged 80,538,415 or 1.91% shares to Axis Trustee Services, while on April 17, 2023, it pledged another 103,237,916 equity shares or 2.44% to Axis Trustees.

Earlier on December 5, 2022, Vedanta had pledged 42,253,190 shares or 1% to SBICap Trustee Company.

In a separate development, Vedanta on May 22 declared its first Interim Dividend of ₹18.50 per equity share i.e. 1850% on the face value of ₹1 per share for the financial year 2023-24, amounting to ₹6,877 crore. The record date for the purpose of payment of dividend is May 30, 2023. 

Vedanta has a strong track record of paying hefty dividends to its shareholders. In the financial year 2023, Vedanta declared a total dividend of ₹101.50 per share, which amounted to ₹37,730 crore, the highest ever by the company. The metal and mining bellwether declared five interim dividends in FY23- ₹31.50 in May, ₹19.50 in June, ₹17.50 in November, ₹12.50 in February, and ₹20.50 in March.

Recently, Crisil Ratings downgraded the outlook for Vedanta to 'negative' from 'stable', citing increased cash outflow in the form of dividends towards large maturing debt obligations at its parent company, Vedanta Resources (VRL). The rating agency said that continued assistance through dividend payout to the VRL to support its debt has resulted in significant cash outflow to minority shareholders.

Crisil has revised its rating outlook on the non-convertible debentures (NCDs) and long-term bank facilities of Vedanta to ‘negative’ from ‘stable’, while reaffirmed the rating at ‘CRISIL AA’. The rating on the commercial paper and short-term bank facilities has been reaffirmed at ‘CRISIL A1+’.

“The revision in outlook reflects possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to 1-year maturities for fiscals 2023 and 2024. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company viz. Vedanta Resources. This is owing to increased refinancing risk at VRL and moderating operating profitability (EBITDA) of Vedanta,” the agency said in a report released in March this year.

VRL has annual debt maturities of around $3 billion each in fiscal year 2024 and 2025 with high near-term maturities of around $1.7 billion in the first quarter of fiscal 2024. The rating agency said that the company is in discussion with lenders for refinancing upcoming maturities of the first quarter of fiscal 2024 and the same is expected to be completed by end of March 2023 or early April 2023.

The agency, however, said that the progress on the refinancing plans have been slower than expected, thereby resulting in increased dividend payout by Vedanta and reduced cash and cash equivalents during the fiscal.

As per the report, including the recent dividend announced by Hindustan Zinc (HZL), the subsidiary of Vedanta, dividend payout by Vedanta for fiscal 2023 will be more than ₹40,000 crore (highest ever, including dividend payout by HZL to its minority shareholders). This is expected to result in a cash balance of less than ₹20,000 crore for March 2023 against more than ₹30,000 crore in March 2022.

In March this year, HZL also declared its fourth interim dividend for its shareholders for the financial year 2022-23. The country’s largest zinc miner declared an interim dividend of ₹26 per equity share, amounting to ₹10,985.83 crore. The interim dividend is 1,300% of the face value of equity share of ₹2 each.