Vedanta shares gain 4% on report of SBI nod to demerger plans

Shares of billionaire Anil Agarwal-led Vedanta jumped nearly 4% in intraday trade on Thursday amid a report that the mining company has received approval from one of its major lenders, State Bank of India (SBI), to go ahead with its demerger plans. In September last year, Vedanta had proposed to demerge its existing businesses into six independent entities, subject to requisite approval. The demerger is expected to be completed by the end of this year, as per the letter issued by its chairman Anil Aggarwal to stakeholders last month.

Continuing its gaining streak for the second day, Vedanta shares gained as much as 3.76% to ₹457.95, while its market capiatlisation rose to ₹1.69 lakh crore. Early today, the stock opened higher at ₹451.75 after ending 5.7% higher at ₹441.35 on the BSE. In two sessions, the mining heavyweight has risen as much as 10%.

The share price of Vedanta touched its 52-week high of 506.85 on May 22, 2023, with the counter more than doubling from its 52-week low of 207.85 hit on September 28. 2023.

In September 2023, the diversified natural resource company announced the demerger of its business into six separate listed companies to potentially unlock value for its shareholders. The demerger is being seen as part of the group’s strategy to help its parent company, London Stock Exchange (LSE)-listed Vedanta Resources, to manage its debt load. 

As per the proposed demerger, Vedanta will be split into Vedanta Aluminum, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Ltd, which will be listed as separate entities on domestic bourses. The demerger is planned to be a simple vertical split, for every 1 share of Vedanta Ltd, the shareholders will additionally receive 1 share of each of the 5 newly listed companies.

Vedanta's business portfolio spans assets in zinc, silver, lead, aluminum, chromium, copper, and nickel; oil and gas; a traditional ferrous vertical including iron ore and steel; and power, including coal and renewable energy; and semiconductors and display glass. 

CRISIL in a report says that the demerger deal will need requisite approvals, including from shareholders and lenders, and could take 3-4 quarters for completion. Also, clarity on allocation of assets and liabilities across entities under the proposed structure, along with group/parent support philosophy for each entity, is yet to emerge. “This will be critical for evaluating the credit profiles of the entities, including Vedanta, under the proposed structure and for resolution of the rating watch,” the rating agency said in the credit report released in March 2024. 

Echoing the same, India Ratings and Research (Ind-Ra) in a report said that it did not have any clarity regarding the implications of the demerger on Vedanta’s liquidity and credit profile, as the agency has yet to receive the details of break-up of assets and liabilities. In Ind-Ra’s view, while the transaction provides opportunities to monetise assets at each of the individual verticals, it could also increase the structural subordination at Vedanta post the monetisation of some of these assets. 

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