With its demerger, Vedanta is going for broke

livemint.com:

Anil Agarwal’s Vedanta Group is demerging the natural-resources conglomerate Vedanta Ltd (Vedl), which is listed in India, into six separate companies. The group has said it aims to complete the reorganisation by September 2025 and list at least five of the new entities by March 25. Since the group also controls Hindustan Zinc its share price is sure to be affected, too.

The group aims to carve out its various divisions – aluminium (Vedanta Aluminium), power (Vedanta Power), ferrous (Vedanta Steel), copper and zinc (Vedanta Base Metals) and Vedanta Oil & Gas – into separate, listed entities. Vedl will continue to hold the stainless steel unit, Facor, the new semiconductor unit, and the stake in Hindustan Zinc. The board of directors has approved this but it still needs the approval of 75% of shareholders by value (the promoters own 63.7%) and creditors.

The restructuring is Vedanta’s attempt to solve a looming debt issue. The group must pay creditors between $1.3 billion to $1.4 billion in the next six months, and has bond payments worth$ 1 billion due in January 2024. It will also have to repay or refinance debt worth about $3 billion in FY25, in addition to servicing the interest.

This won’t be easy. Interest rates are high and the credit rating of the holding company Vedanta Resources (VRL) is low. (VRL is UK-listed and suffered a recent credit rating downgrade).

The Fed’s hawkishness rules out an easy-money regime for much of this period so refinancing will be expensive. Commodities such as industrial metals have seen price drops due to weak global demand, reducing realisations and reducing cash flows. The main source of income for VRL to service debt is brand fees ($327 million in FY23) and dividends ($2.5 billion