Why Vedanta Shares Are Jumping After Devastating Week

Shares of Vendata were climbing in early trade on Thursday after reports that the firm was looking to split up into a number of listed companies to tackle its parent’s debt problems.

What Happened: The Indian multinational giant is on the edge of demerging its diverse operations into separate listed entities as part of a wider restructuring plan, Bloomberg reported, citing sources. The move is primarily aimed at managing the debt burden of Vedanta’s parent company, Vedanta Resources.

The demerger could reportedly result in businesses like aluminium, oil and gas and iron and steel becoming individual listed entities. The company is said to have already briefed its lenders about the upcoming restructuring and the plans could be unveiled in the coming days.

Last month, Vedanta Chairman Anil Agarwal hinted at the potential of listing some or all of the company’s businesses separately, covering domains from metals and mining to oil and gas. This move is in stark contrast to Agarwal’s failed attempt in 2020 to delist Vedanta to simplify its corporate structure.

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Vedanta Resources has been trying to raise funds for a large part of this year due to worries about meeting debt obligations. Earlier this year, it attempted to reduce its $7.7 billion (₹64,100 crore) debt by having Hindustan Zinc Ltd, a Vedanta Ltd unit, purchase some of the parent’s zinc assets in a $2.98 billion (25,000 crore) deal. However, this move was opposed by the Indian government, which holds nearly a 30% stake in Hindustan Zinc.

Why It Matters: The proposed demerger comes after a challenging period for Vedanta Resources. Just this week, Moody’s Investors Service downgraded Vedanta Resources’ rating, leading to a nearly 7% drop in Vedanta Ltd’s shares.

Earlier in June 2023, Vedanta Resources had resorted to brand monetisation, refinancing, and transfer of general reserves to meet its challenging debt repayment deadlines. The company had paid $2 billion (₹16,643 crore) of its $4.2 billion (₹35,000 crore) total debt repayment due in FY24. The demerger plan is the latest in a series of strategic moves aimed at tackling the company’s financial challenges.

Price Action: Vedanta Shares were up 1.41% at ₹211.90 just after market open on Thursday.

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