Vedanta, Hindustan Zinc shares fall on short-seller Viceroy Research's report on parent entity

Shares of Vedanta and its subsidiary Hindustan Zinc plunged by as much as 8% in intraday trade on Wednesday, after a report by short-seller Viceroy Research raised red flags about their parent company Vedanta Resources Ltd (VRL). The report alleged financial irregularities at the U.K.-based Vedanta Resources, saying that its operations were akin to a "Ponzi scheme" due to its complex debt structure and alleged use of intercompany transactions to mask financial stress. Viceroy further disclosed it is short on VRL’s debt.

The Vedanta Group, however, dismissed the report, calling it "a malicious combination of selective misinformation and baseless allegations to discredit the Group". In a statement, Vedanta said, "It has been issued without making any attempt to contact us with the sole objective creating false propaganda. It only contains compilation of various information—which is already in the public domain, but the authors have tried to sensationalise the context to profiteer from market reaction." The Vedanta statement also said that the timing of the report "is suspect" given the group's corporate restructuring that is underway. "Our stakeholders are discerning enough to understand such tactics."

Vedanta shares declined by as much as 7.7% to ₹421 on the BSE, while Hindustan Zinc shares tumbled 4.8% to hit an intraday low of ₹415.30.

At the time of reporting, shares of Vedanta were trading 3.45% lower at ₹440.55, with a market capitalisation of ₹1.72 lakh crore, while Hindustan Zinc were down 2.56% at ₹425.05, while it market value slipped to ₹1.79 lakh crore.

Short-seller Viceroy alleged that the “entire group structure is financially unsustainable, operationally compromised, and poses a severe, under-appreciated risk to creditors”. The report noted that Vedanta has accrued a $5.6 billion free cash flow shortfall against dividends over the past three years, while its net debt, including working capital items, increased by $6.7 billion (around 200%) since FY22. It said that the metal and mining major has depleted its cash reserves and exhausted its ability to borrow money and “liquidate” working capital items. Conversely, over the same period, VRL’s interest costs have increased by around $200 million per year, Viceroy said.

The report further alleged that VRL is systematically extracting value from its Indian subsidiary Vedanta to service its mounting debt obligations. This has forced Vedanta to take on increasing leverage and draw down its cash reserves, ultimately eroding its intrinsic value, Viceroy alleged. The report warned that this weakening of Vedanta, which serves as the primary collateral for VRL’s lenders, poses significant risks to both shareholders and creditors.

According to the report, this arrangement has pushed the entire Vedanta group to the brink of insolvency, sustained only by a cycle of new debt, accounting tricks, and the deferral of massive, undisclosed liabilities. Viceroy Research alleges that new credit lines are being used only to destroy the parent company’s only collateral, staving off immediate insolvency at the expense of any chance of creditors recovering principal. 

Not much is known about the short-seller, whose website identifies Viceroy as an investigative financial research group registered in Delaware in the U.S. The website states that their research reports are prepared for "educational purposes only" and expresses their opinions. It disclaimer further states the reports are based on "publicly available facts, field research, information, and analysis through our due diligence process, and are not statements of fact".

In fact, Vedanta's statement also refers to the disclaimer, mentioning that these are just opinions and not statements of facts.