Vedanta’s Demerger Plan Raises Concerns Over Parent Company’s Debt Obligations

Metals-to-oil conglomerate Vedanta Ltd’s decision to split into six separate units within the next 15 months has raised concerns among analysts regarding its UK-based parent company’s ability to meet its impending debt obligations. At least four brokerages have expressed doubts about the immediate impact of the demerger on Vedanta Resources, which is facing a payment deadline of approximately $4.2 billion rupees.

Vedanta Ltd, led by billionaire Anil Agarwal, recently announced its shift in strategy from taking the entire company private to spinning off into commodity-focused entities. This move aims to strengthen the conglomerate’s financials following a series of disappointing results. However, analysts argue that the demerger does not address the debt concerns of Vedanta Resources, which must repay a significant portion of its debt by FY25.

Nuvama analysts noted that the split would not improve Vedanta’s credit profile, while Centrum Broking suggested that refinancing or stake sales in subsidiaries might be necessary for the parent company to meet its debt obligations. Additionally, non-core businesses that are not generating sufficient cash flow are likely to be sold after the demerger, according to analysts.

Vedanta shares, which have experienced a decline of approximately 25% this year, saw a 4.5% increase to 232.80 rupees on Tuesday. The metals index has shown a modest 1% increase so far this year.

While the demerger plan aims to revitalize Vedanta Ltd, concerns remain regarding the financial challenges faced by its parent company, Vedanta Resources. The company may need to explore alternative strategies such as refinancing or stake sales to address its debt obligations effectively.