Vedanta’s tangled debt, dividends, demerger: Where do shareholders stand?

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Subscribe to enjoy similar stories. Vedanta is one lucky company. It has a monopoly on nickel production in India, is the largest private crude oil producer and iron ore miner in India, has the lowest cost of production, and pays incredible dividends.

If you’d bought one share of Vedanta for ₹142 in November 2019, you’d have received ₹191 in dividends, and that share is now trading above ₹430. Some analysts have a ₹600 target price. And yet, the one thorn in its side that’s keeping investors cautious – despite the company’s promises and management's multiple restructuring efforts – is Vedanta’s accumulating debt.

Last year, Vedanta was in a do-or-die situation as it had upcoming debt repayments. This year it has settled its FY25 debt repayments, but the firefighting could resume next year. If the company is struggling to pay its debt, why is it pampering shareholders with rich dividends? The answer lies in its complex corporate structure and the huge debt it has accumulated in the past few years by acquiring sick assets.

The parent company Vedanta Resources Limited (VRL) is based in the UK and chaired by Anil Agarwal. It is a holding company that has a more than 50% stake in the operating company Vedanta Limited (VDL). VRL’s major source of income is dividends and brand fees from VDL.

The irony is that VDL has a huge cash reserve locked in its equity. The holding company, VRL, made several attempts to restructure its business to use VDL’s cash reserves to reduce its debt. In 2018, VRL delisted itself from the London Stock Exchange.