Vedanta to take demerger call by March-end: Chairman Anil Agarwal

Metals and mining group Vedanta Ltd will announce the contours of a proposal to spin off key businesses into separate listed companies by March-end, its chairman Anil Agarwal said, as he looks to simplify and streamline the corporate structure to create value.

While the zinc business is already housed in a listed subsidiary, the plan is to demerge the aluminum, iron and steel, and oil and gas businesses into standalone listed entities.

This will unlock value for all stakeholders as well as create businesses that are positioned better to capitalise on their distinct market positions and deliver long-term growth and enable strategic partnerships, he told PTI in an interview.

It will also help tailor capital structure and capital allocation policies based on business-specific dynamics as also create distinct investment profiles to attract deeper and broader investor bases.

"It (demerger) is a natural thing to do. Market is very good and production (at different divisions of Vedanta) is going well. And so we think having separate companies will create valuation," he said. "I think, maybe in a month and a half, sometime before March-end we will announce the full (contours)."

Mumbai-listed Vedanta Ltd had in November last year announced that its board of directors had formed a sub-committee to evaluate a potential spinoff of its aluminum, iron and steel, and oil and gas businesses into separate listed companies.

Following the sub-committee's evaluation, the board could also consider other alternatives such as strategic partnerships that would unlock value in the businesses for its shareholders.

The spinoff will result in three new listed entities with a shareholding mirroring that of Vedanta Ltd.

After this, London-based parent Vedanta Resources group will comprise five listed entities. Four of them -- Vedanta Ltd and the three newly listed companies -- will have the same shareholding. The group's listed zinc subsidiary, Hindustan Zinc Limited (HZL), will continue to be 64.9 per cent owned by Vedanta Ltd.

The plan under evaluation is the same as what port-to-energy conglomerate Adani Group did in 2015 -- creating separate listed entities for power, mining, gas and transmission businesses.

The group's oil and gas business is held at Vedanta Ltd through its wholly-owned subsidiary Cairn India Holdings Limited (CIHL). While zinc operations in India are held at HZL, the group also has zinc mining operations in South Africa through Vedanta Ltd's wholly-owned subsidiary Zinc International (ZI).

Its aluminum operations are run as a division at Vedanta Ltd and through Vedanta Ltd's 51 per cent owned subsidiary Bharat Aluminum Company Ltd (BALCO).

Agarwal said the rationale behind a spinoff/strategic partnership is to unlock value for its shareholders and to help in better transparency in the deployment of the cash surpluses from each business towards reinvestment or dividends.

In the current structure, there is no separate disclosure on the free cash flow generation by the different businesses. Whereas after spinoff, each entity will report its separate financials.

It is expected that Vedanta Ltd's standalone debt will be transferred to the three listed companies equitably.

Asked about the consolidation that the group was attempting earlier and has now taken the completely opposite direction of split, Agarwal said the buyback was important then but now it is "very important that the show must go on."

"We are 1.5 per cent of the GDP of the country. We are the highest tax payer, paying Rs 3 lakh crore in taxes. And we believe in India, India and India.

"India must create jobs, India should not import oil and gas, zinc and silver. It is important that we increase our production. And we must create value," he said.

"The whole idea is to make investors very comfortable. Looking at different silos will give production, cost of production, EBITDA, independent governance structure with independent directors... Everything will be very very clear," he added.

In 2020, the promoters had sought to delist Vedanta Ltd by buying back shares held by the public. But the offer failed as it could not get the minimum requisite shares needed for the delisting.

At present, the subsidiary commands a market capitalisation larger than the parent. The market cap of HZL is Rs 1.32 lakh crore while that of Vedanta Ltd is Rs 1.18 lakh crore.