Anil Agarwal, the visionary behind Vedanta’s growth into a $10 billion conglomerate, is considering restructuring the company to address increasing debt concerns. His dreams for Vedanta once echoed ambitions to rival industry giants like Exxon and BHP. However, current financial strains are nudging a new direction for the firm.
Debt Challenges and Credit Concerns
Over recent months, credit rating agencies have cast doubts on Agarwal’s capability to fulfill payment obligations. Investors have been wary of his restructuring proposals, and the government has raised objections to extracting more from Hindustan Zinc, where it retains a stake. A notable setback came when Vedanta’s partner withdrew from a semiconductor joint venture, a segment the company eyed for growth.
Addressing Debt Through Diversification
Facing a looming $1 billion payment in January, with $600 million still unfunded, Agarwal contemplates selling assets. Industry expert, Nagesh Chauhan of Tipsons Group, suggests that listing various business segments separately could be a solution. Vedanta’s decision to split into six independent entities, each focusing on distinct industries such as aluminium, steel, and power, is perceived as a strategic move to attract more investment and reduce overall debt.
Valuation and Market Dynamics
Vedanta’s market capitalization stands at over ₹80,000 crore (approx. $9.6 billion). Plans include a separate listing for the oil and gas segment acquired from Cairn Plc, while retaining the stake in Hindustan Zinc and prospective sectors like semiconductors within Vedanta Ltd. This restructuring could enhance the valuation of the newly-listed entities, given the public market’s inclination to value standalone, cash-rich firms more favourably.
While JN Gupta, a former SEBI board member, believes the restructuring will benefit shareholders by offering them choices, banks may show reluctance. Vedanta Ltd has backed nearly ₹10,000 crore (approx. $1.2 billion) of debt and significant inter-group loans.
Vedanta’s dependency on borrowed funds now poses challenges. Agarwal’s strategic shift aims to counter these hurdles, but the success of this move remains to be seen in the evolving metals and mining landscape.