Fitch Co flags concerns over Vedanta demerger
Vedanta's proposed demerger, where it is dividing its debt among the six demerged entities based on their respective book asset values, has raised concerns about the allocation of specific debt to each entity.
For bondholders of Vedanta Resources (VRL), the parent of Mumbai-listed Vedanta, a major concern is the security over the Indian entity's shares, said Fitch Group unit CreditSights in a report.
In September 2023, the mining conglomerate announced plans to demerge five of its key businesses — aluminium, oil and gas, and steel, into separate listed entities.
While Vedanta has said that it aims to value the assets of its demerged entities by their book values, CreditSights believes that it is a relatively straightforward approach as book values are captured at a point in time, «carrying values could be outdated, and may not accurately reflect future profitability and cash flow generation of the business».
Earlier, CreditSights had said that the planned demerger of its other businesses could face major hurdles from minority shareholders and/or creditors, which may delay or derail the deal.
There is uncertainty about how Vedanta will decide and allocate specific debt under which entity and the same applies to its secured rupee bonds issued at the company level. «For VRL's dollar bondholders, the main concern will be what happens to their security over Vedanta's shares,» said the report. «The mild advantages that we see for investors of VRL's dollar bonds are in the form of better equity price discovery for
