Vedanta frees up promoter stake after bond repayment as JP Morgan backs firm despite short-seller attack

Vedanta Ltd on Thursday said that encumbrance on over 2.2 billion equity shares, representing 56.38% of the company’s total shareholding, has been released following the full repayment of bonds. The company clarified that no formal pledge was created by any promoter group entity over these shares in relation to the bonds.

The development comes a day after an adverse report by short-seller Viceroy Research raised red flags about Anil Agarwal-led mining major Vedanta Resources Ltd (VRL) and its operating companies, raising concerns around its financial management and governance practices. Backing Vedanta and its financials, global investment giant JP Morgan, in its latest research note, has said it remains "OW" (overweight) on Vedanta and its bonds, meaning it recommends holding more of Vedanta’s bonds, specifically the 2028s, 2029s, 2030s, and 2031s.

The Vedanta shares closed 0.42% down at ₹438.95 on the BSE today.

Saying that it's not "getting distracted" amid the short seller's report, JP Morgan states that it considers Vedanta to be "cheap" within Asia and within the EM metals and mining space, with healthy EBITDA generation (~$5 billion run-rate), improving funding access (~$1 billion bank loans have been raised by VRL in FY26), and attractive yields (8-10%).

"We prefer VEDLN (Vedanta's) 29s (102.3 offer, 10% YTW) and VEDLN 31s (103.4 offer, 10.2% YTW) along the curve, while being Neutral on VEDLN ’33s (99.14 offer, 10% YTW)."

Highlighting the upside risks, JP Morgan says these are: continued strong commodity prices; further de-leveraging; and potential asset sales/equity raise. Among the key downside risks are weaker commodity prices than it expects, large M&A or capex plans; weak onshore banking access leading to high interest costs and refinancing pressure, and regulatory investigations or scrutiny.

What JP Morgan says about key concerns raised by Viceroy?

VDL has 2x net leverage (ex-HZL): "We have generally focused on Vedanta Ltd’s cash flows and earnings excluding Hindustan Zinc (HZL) to unravel the key drivers of the credit. VDL (ex-HZL) reported EBITDA of $3.1bn in FY25 and a net leverage of 2.2x. We struggle to see financial stress at VDL with these metrics. For HZL, net leverage was 0.1x. HZL has capex plans, and we see net leverage going up to 0.5x."

Gov’t oversight of Hindustan Zinc: "The GoI has retained and maintained three board seats at HZL since its divestment in the early 2000s. In past instances, the government-nominated directors have also acted to prevent transactions that they consider will not be beneficial to HZL or its stakeholders. We believe the GoI retains oversight of major decisions, including capex plans."

Tax dispute: Hindustan Zinc has reported tax and other claims of ₹15,150 crore, which are under litigation, says the report, adding that these are not recognised by the company as liabilities. "JSW Steel too has reported ₹150bn of such claims under litigation. Neither company shows the amount as a liability on the balance sheet. Such claims and the related litigation are common in heavily regulated sectors like mining."

HZL put/call option: The report says the government had call/put options requiring Vedanta to purchase or sell its stake at a 50% premium or discount to the market price of Hindustan Zinc shares. "These options could be exercised within 90 days of the GoI becoming aware of a default on a particular condition related to the completion of a smelter plant in a specific location. The project was to be completed by 2007, but HZL completed the smelter at a different location after informing the GoI. We would be surprised if any breach had not been identified by the GoI over the past ~20 years."

Viceroy's charges and Vedanta’s counterstatement

Short-seller Viceroy 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.

It also 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 Vedanta Group, however, dismissed the report, calling it "a malicious combination of selective misinformation and baseless allegations to discredit the Group." Vedanta said the report has been issued without making any attempt to contact the company with the sole objective of creating false propaganda. "The authors have tried to sensationalise the context to profiteer from market reaction."