Vedanta throws itself a lifeline amid rising debt, unfolding controversies
The revamp involves a demerger, partitioning the business into six publicly listed entities dealing with aluminium, oil and gas, power, steel, and base metals
Anil Agarwal, a former scrap dealer who went on to build a multi-billion-dollar metals-to-oil business across the globe, buying mines at a whim, decided to put a break to his ever-growing ambition this weekend to pare down his Vedanta Group’s mounting debt.
In an announcement late Friday (September 29), the board of Agarwal’s company, Vedanta Ltd, said it had approved an extensive overhaul of its businesses to align with Agarwal’s goal of becoming a zero-debt company in a couple of years. The group’s total debt stands at around $13 billion, with the Indian financial institutions having an exposure of between $5.5 billion and $6 billion.
The revamp involves a demerger, partitioning the business into six separate, publicly listed entities encompassing sectors like aluminium, oil and gas, power, steel, and base metals. For each share held in Vedanta Ltd, shareholders will be granted a stake in the five newly listed entities. The six independent listed entities consist of Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Ltd.
This decision underlines Vedanta’s strategic shift to unburden its financial load, simplifying its corporate structure and expanding opportunities for global and Indian investors to channel their investments into their preferred sectors. It is anticipated that the independent entities, once demerged, will bloom, unshackled and driven by independent management and targeted growth strategies.
Agarwal’s rise and mounting debt
Agarwal’s journey has, however, been astonishing. Despite limited English proficiency and starting with the humble beginnings of collecting scrap metal in Mumbai in the 1970s, Agarwal, whose group’s total net assets are worth $25 billion, now resides in London’s iconic Mayfair mansion, once owned by one of the wealthiest families in Europe, the Rothschild family, building businesses across the globe, primarily by borrowing large sums of money.
Vedanta terms itself as a leading global natural resources and technology conglomerate operating across India, South Africa, Liberia, and Namibia. Its website says it is the largest producer of zinc, lead and silver, aluminium, iron ore, oil and gas, and ferrochrome. Its other company, Cairn Oil & Gas, produces 25 per cent of India’s oil production with a target to scale it to 50 per cent. Nicomet, a recent Vedanta acquisition, is India’s sole producer of nickel, widely known as the mineral of the future.
Agarwal has steadfastly denied that his company is burdened with ever-growing debt. He disclosed to a news agency in May that the total debt in the company is around $13 billion, but the group had posted a profit of $7 billion. He said the company has reduced debt by around $3 billion within three years, terming the reports about the debt payment capability of the group as “absolutely irrelevant”.
According to an analyst report from brokerage company Motilal Oswal, Vedanta’s debt has an average maturity of three and a half years and carries an average interest of about 7.8 per cent. The company has to pay back or refinance $750 million in debt in the next two months and $2 billion for the financial year 2024.
According to the May report by Motilal Oswal’s research analysts Alok Deora and Parthiv Deepak Jhonsa, the management has said it is dedicated to paying off or refinancing the entire debt amount at the holding company level. They have already paid off $2 billion this year and $3 billion. The holding company plans to commit to paying off $4 billion in debt. Additionally, selling a zinc asset to Hindustan Zinc is in progress, with the company exploring various options to complete this deal.
Restructuring raises doubts
However, following Vedanta’s announcement of the restructuring of the various businesses, rating agencies like S&P and Moody’s have lowered Vedanta Resources’ credit ratings, citing the looming risks and the company’s sluggish progress on refinancing its approaching debt maturities. “We believe the likelihood has increased that Vedanta Resources will undertake a liability management exercise that we could consider distressed under our criteria,” S&P Global said in its release.
Vedanta has not been without its share of controversies. A recent article by the Organised Crime and Corruption Reporting Project (OCCRP) claims that Vedanta, led by Anil Agarwal, secretly worked to weaken necessary environmental regulations during the COVID-19 pandemic. According to the article published in early September, the Indian government approved these changes without public consultation, using methods that are considered illegal. Vedanta has, however, completely denied its involvement.
In January 2021, according to the article, Agarwal suggested to the former environment minister that the government could aid India’s economic recovery by allowing mining companies to increase production by up to 50 per cent without obtaining new environmental clearances. The article also states that Cairn India, Vedanta’s oil business, successfully lobbied to eliminate public hearings for exploratory drilling in oil blocks it won in government auctions. Despite local opposition, six of Cairn’s controversial oil projects in Rajasthan have been approved.
The OCCRP alleges, based on its analysis of thousands of Indian government documents obtained through freedom of information requests, that Vedanta was involved in these activities. This report was published a day after a report on Adani Group, which claimed the investment of millions in some publicly traded stocks of Adani Group via “opaque” Mauritius funds that concealed the involvement of alleged business partners of the Adani family.
In 2018, Vedanta faced its first significant controversy during a protest in Thoothukudi, Tamil Nadu, against the company’s copper smelter plant, which locals said was causing soil, air, and water contamination. Thirteen people were killed after police opened fire.
Sterlite Copper has faced consistent resistance from local fishermen groups since its establishment, sanctioned by the Tamil Nadu Pollution Control Board in 1994. Intermittent protests in Thoothukudi began in 1999, with the primary concerns being soil, water, and air contamination due to the factory’s operations. An investigation from 2006-07 by Tirunelveli Medical College revealed a heightened occurrence of respiratory, ear, nose, and throat ailments in areas close to Sterlite Industries.
Even though the group has announced a significant restructuring of its businesses, questions about its financial sustainability, environmental impact, and societal role persist. The coming years will undoubtedly test the resilience and adaptability of Agarwal and the empire he has built.