CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Demerger won’t impact Vedanta parent’s (VRL) credit rating: Moody’s

By Anoop Agrawal

09:17, 23 November 2021

Zinc mine. Background of mining industrial landscape on the open pit. Opencast textured land.
India-based mining major’s demerger will unlock business value – Photo: Shutterstock

India-based mining major Vedanta’s (VEDL) move to demerge into three different entities won’t impact the credit rating of the parent company Vedanta Resources (VRL) as economic interests in the conglomerate remain unchanged, said rating agency Moody’s Investor Service.

The London-listed Vedanta Resources’ majority-owned subsidiary Vedanta announced forming a panel last week to evaluate a spinoff of its aluminium, iron and steel, and oil and gas businesses into separately listed companies. The company said it may resort to alternatives such as strategic partnerships in order to unlock value in its businesses.

According to Moody’s, the objective behind the proposed demerger — subject to approval from shareholders and regulators — was to help in better transparency in the deployment of cash surpluses from each business for reinvestment or dividends.

At present, the company does not disclose sources of free cash flow generation by the different businesses.

Diversified business model

“Over the past few years, Group has materially improved the operational performance of the businesses, increased cash flows, reduced debt whilst concomitantly focusing on accelerating investments in energy transition, health and safety, diversity and ESG (Environmental, Social and Governance) in general,” said Anil Agarwal, chairman of Vedanta group in the exchange filing announcing the demerger. 

“This step, 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 and value for customers, investors, and employees,” he added. 

BTC/USD

44,031.25 Price
-1.240% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00

XRP/USD

0.68 Price
+0.490% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 22:00 (UTC)
Spread 0.01168

Gold

2,004.85 Price
-1.180% 1D Chg, %
Long position overnight fee -0.0198%
Short position overnight fee 0.0116%
Overnight fee time 22:00 (UTC)
Spread 0.50

Oil - Crude

71.41 Price
+2.320% 1D Chg, %
Long position overnight fee -0.0204%
Short position overnight fee -0.0015%
Overnight fee time 22:00 (UTC)
Spread 0.030

According to Moody’s, the consolidated profile of the parent company Vedanta Resources would continue to draw the benefits of a diversified business model in maintaining profitability and counter any volatility in the underlying commodity price cycles.

Separate entities and separate listings

The proposed de-merger when effective will result in the conglomerate having companies listed on equity bourses with four subsidiary units having the same shareholding pattern while only the parent would have a different one. The group’s flagship zinc business subsidiary, Hindustan Zinc will continue to be 64.9% owned by Vedanta.

“We expect Vedanta Limited’s standalone debt to be transferred to the three listed companies equitably. Importantly, we expect Vedanta Resources to continue to exercise management control over Vedanta Limited’s and Hindustan Zinc and for the same governance in its management of the new listed companies,” said Kaustubh Chaubal, vice-president and senior credit officer at Moody’s Investors Service.

“The new listed companies, we estimate, will distribute 30% of their annual profit through dividends, aligned with the dividend policies of Vedanta Limited and Hindustan Zinc,” Chaubal added.

Shares of Vedanta traded 6.5% higher at INR350 on the National Stock Exchange in the afternoon. 

Read More: India’s Vodafone (IDEA) follows Airtel’s suit, hikes tariff

Rate this article

Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 570.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading