Vedanta demerger: A six-course painkiller for Anil Agarwal's $4 billion headache?
Anil Agarwal's strategic move to demerge Vedanta into six different listed entities to unlock value is not enough for the Patna-born mining baron to clear the heavy debt obligation estimated to be worth over $4 billion but lays the groundwork for future deleveraging.
Vedanta Ltd's parent company Vedanta Resources Ltd (VRL) has debt repayments worth $1.3-1.4 billion to make in the next six months, including bond payments of $1 billion in January 2024. In FY25, there are debt obligations worth $3 billion, besides interest-servicing requirements, according to various brokerage estimates.
As the demerger process will likely take 12-15 months to complete, it won't help the parent company to meet debt obligations.
With the global commodity markets facing multiple headwinds, including muted demand pick-up from China, the likely course of action for Vedanta is refinancing or divestment of stake in Vedanta or individual businesses, analysts say.
«The demerger could make a partial divestment in different businesses easier, which would help VRL in deleveraging. However, the demerger by itself is unlikely to unlock any value, in our view,» said Sumangal Nevatia of Kotak Equities, adding that debt remains a key overhang and requires divestment of non-core businesses.
The company has told analysts that debt at a consolidated level is expected to remain consistent and will be allocated appropriately among individual business units.
«As this demerger does not improve Vedanta's credit profile, the situation remains the same for VRL — to refinance the debt.
