Vedanta demerger: Mining major forms base metals subsidiary; stock up 3%

Taking the first step towards the proposed demerger of mining giant Vedanta Ltd into six listed entities, the company has announced the incorporation of its wholly-owned base metal subsidiary Vedanta Base Metals Ltd on Wednesday. The new company will engage in the business of “metals”.

Anil Agarwal-led company, in a statement issued on Wednesday, says the new company was incorporated on October 09, 2023, with an authorised capital of ₹1 lakh and a subscribed capital of ₹1 lakh. It will be 100% owned and held by Vedanta Ltd.

"Vedanta Base Metals Limited is a public company incorporated on October 09, 2023, under the Companies Act, 2013 provisions, having CIN-U43121MH2023PLC411696, with its registered office in the State of Maharashtra. Its main object is to carry out the Metal business," Vedanta says via a stock exchange filing.

Amid the development, Vedanta shares surged 2.61% to ₹227.95 on the BSE. After a flat opening at ₹222.15 today, the shares surged 3.3% to an intra-day high of ₹229.90. At the current share price of ₹228.20, the m-cap of the company stands at ₹84,826.43 crore.

The large-cap stock has surged 1.79% in the past week; but dropped 4.30% in the past month; 16.37% in the past six months; and 27.87% in in the year-to-date period; and 20.29% in the past year.

The mining major aims to demerge its mining business units into six independent “pure play” companies, which it says will "unlock value" and attract investment. Apart from Vedanta Base Metals, the five other listed companies will be Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, and Vedanta Ltd.

Vedanta’s demerger plan is seen as part of the group’s strategy to help its parent company manage its debt load. The London Stock Exchange (LSE)-listed Vedanta Resources is the parent company of Vedanta, which has to repay term debt worth $4.2 billion in FY24.

The demerger is planned to be a simple vertical split, for every 1 share of Vedanta Ltd, the shareholders will additionally receive 1 share of each of the 5 newly listed companies.

Vedanta's business portfolio spans assets in zinc, silver, lead, aluminum, chromium, copper, and nickel; oil and gas; a traditional ferrous vertical including iron ore and steel; and power, including coal and renewable energy; and semiconductors and display glass. 

In its rationale behind the demerger of the business, Vedanta says it simplifies Vedanta’s "corporate structure", with sector focussed independent businesses.

Notably, global ratings agency Moody’s Investor Services last month downgraded Vedanta Resources’ corporate family rating, citing slow progress on refinancing of its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024. It warned that it could cut VRL's ratings further if the company fails to make progress on funding arrangements to service its debt such that the risk of default increases materially higher than indicated by the current ratings.

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