Billionaire Anil Agarwal-led Vedanta Ltd is evaluating a demerger of its aluminium, iron & steel and oil & gas businesses, which will be run as standalone listed entities with separate leadership in what it called a value-unlocking exercise.
On Wednesday, Vedanta announced the constitution of a committee of directors to evaluate and recommend such options and alternatives to the board.
“This step, which we announced today, whilst pending a detailed evaluation, is designed to create independent, industry-leading, global public companies, where each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth,” chairman Anil Agarwal said.
After a detailed evaluation aided by one of the Big Four accounting and consulting firms, the board’s intention would be to demerge and spin-off the businesses into standalone listed entities, Agarwal said.
In effect, it means once the evaluation process is completed and approval from regulators is received, a Vedanta shareholder will own shares of four business entities, including the parent Vedanta Ltd. The investors will also have the option to stay invested in the businesses they prefer.
“These businesses deserve to be independent to grow and create value. Aluminium like Hindalco, oil and gas companies like ExxonMobil and steel and iron ore like JSW Steel. This is our vision,” Agarwal told ET.
Vedanta will, however, continue to hold stakes in Hindustan Zinc and Balco, where the government still holds a residual stake, and the company’s chrome metal business.
The board will undertake a comprehensive review of the corporate structure and evaluate a full range of options and alternatives, including demerger, spin-off and strategic partnerships to unlock value and simplify the corporate structure, the company said in a statement.
“The board has also appointed various advisors to assist the board in evaluating the options,” it said.
Company insiders expect the restructuring to be quick, subject to approvals from regulators.
“This is too early to comment, but the intent seems positive. A shareholder who is not willing to get exposed to other businesses like aluminium or iron and steel can now opt-out of it,” said a research analyst on the condition of anonymity.
The strategic objectives for undertaking such an exercise are simplifying and streamlining the corporate structure, unlocking value for all stakeholders, and creating businesses that are positioned better to capitalise on their distinct market positions.
“We need to wait and watch how the management will put forth the value-unlocking measures. When it was one single entity, the pressure on some businesses was lesser. Now shareholders will be expecting those companies also to perform well,” said the analyst cited above.
This is also done to create distinct investment profiles to attract deeper and broader investor bases and to accelerate emissions reduction and strong ESG (environmental, social and governance) practices, the company said.
“We will continue to leverage our significant strengths in technology, operations and people to better serve our customers and all stakeholders,” Agarwal said.
Vedanta shares ended 1.81% higher at Rs 338.40 on the BSE Wednesday when the benchmark Sensex ended 0.52% lower. The company’s announcement came after market hours.
The Vedanta Group is not a stranger to restructuring exercises. In 2018, its Indian entities Cairn Energy, Sterlite Industries and Sesa Goa were merged into Vedanta Ltd.
During the peak of global pandemic last year, UK-based Vedanta Resources had launched an open offer to delist the Indian subsidiary. While the plan failed as it was rejected by its minority investors, Agarwal’s holding firm managed to increase its stake from 50.13% to the current 65.18% in the Indian company.
It will continue to own the same stake in the businesses even after a demerger, Vedanta said.
Vedanta Ltd in September had delisted its American Depositary Shares from the New York Stock Exchange to terminate its ADS programme that represented 4% of the equity at the resources conglomerate.