(Bloomberg) -- Billionaire Anil Agarwal’s Vedanta Ltd. has announced plans to overhaul the tycoon’s sprawling conglomerate amid efforts to reduce a multibillion dollar debt load at its parent company.
The board of Vedanta Ltd. approved a plan to separate the business into six listed companies: aluminum, oil and gas, power, steel and ferrous, base metals and Vedanta Ltd., the company said in a statement Friday. For every share of Vedanta Ltd., investors will receive one share of each of the five new companies.
Bloomberg News reported earlier this week that a broad restructuring effort was imminent, with separate listings for Vedanta’s main businesses. Efforts to simplify a complex financial structure and to reduce a deep conglomerate discount have been floated by the group in the past, including in a video posted in August, but have not previously come to fruition.
The said it expects to complete the demerger in the financial year ending March 2025. Friday’s move, if successful, would pave the way for Agarwal to hive off low-growth assets to raise cash, while allowing investors to bet on some of the company’s newer ambitions, including in semiconductors.
Separately, Agarwal also renamed his family trust, which controls the entire business, to Vedanta Inc. from Volcan Investments.
Unit Hindustan Zinc also announced a plan earlier Friday to explore separate legal entities for its zinc & lead, silver, and recycling businesses to help capitalize on “distinct market positions” and attract investors. A committee of directors will evaluate the options and advise the board, along with external advisers.
Shares of Vedanta Ltd. jumped 6.8% in Mumbai, while Hindustan Zinc climbed 3.6%.
“Agarwal’s efforts remind me of the phrase rearranging the deck chairs on the Titanic,” said Amit Tandon, managing director and founder of proxy advisory firm Institutional Investor Advisory Services India Ltd. “Capital allocation decisions in the operating companies are being driven by the debt in the holding company and the need to service this.”
The Indian government, which owns almost 30% of Hindustan Zinc, would need to consider the changes and the impact on the entity’s debt, he said.
A heavy debt load at the holding company has increased the urgency to simplify the structure. Vedanta Resources Ltd., the parent of Vedanta Ltd., has $2 billion of bond repayments due in 2024 and another $1.2 billion in 2025.
Vedanta Resources notes due in April 2026 fell 1.1 cents on the dollar on Friday to 64.4 cents, according to data compiled by Bloomberg. That’s the biggest single day decline since Aug. 31. Other US currency notes due in January 2024 and August 2024 fell for a fourth straight session on Friday.
The plan to restructure the businesses will be fraught, and hinge on shareholder, lender and regulatory approvals. A key complication could also be the group’s use of its own stock in Vedanta Ltd. and in key cash-generating unit Hindustan Zinc Ltd. to secure debt. According to stock exchange data, it has pledged virtually all of its majority holding in both companies.
Earlier this week, Moody’s Investors Service downgraded Vedanta Resources deeper into junk territory.
--With assistance from Divya Patil.
(Updates throughout with details of Vedanta’s separation plan)
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