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Indian billionaire Anil Agarwal is moving forward with a plan to divide his energy and mining conglomerate into six separate companies. Agarwal believes this move will increase the overall value of his business empire and help prevent a debt crisis.
Vedanta, which is listed on the Mumbai stock exchange, will now consist of six divisions: aluminium, power, base metals, steel and ferrous metals, oil and gas. The company will retain its semiconductor and display manufacturing businesses, as well as Hindustan Zinc, a highly profitable subsidiary.
The decision to split the conglomerate is based on the belief that separate entities will attract higher valuations from investors. Agarwal explained, “If you can make them separate, they can grow at their own speed.”
Shares in Vedanta rose 7% on the news, although they are still down nearly 30% for the year. Omar Davis, Vedanta’s head of strategy, said the restructuring is aimed at catering to the market’s demand for investments in the Indian and Chinese economies.
Agarwal, who started as a scrap metals trader in Mumbai, plans to take on a more active role as an investor overseeing the individual companies. The restructuring process is expected to take between nine and 12 months to complete.
In addition to its operations in India, Vedanta also has business interests in Africa. The company is the largest supplier of aluminium in India and is involved in the production of fossil fuels and copper.
This restructuring comes shortly after Agarwal expressed a desire to move away from the conglomerate model due to investors’ preference for “pure play” stocks. The move to divide the business empire is not directly linked to Vedanta Resources’ ongoing debt negotiations, but the separation of entities is expected to ultimately benefit bondholders by making it easier for them to raise funds.
Moody’s recently downgraded Vedanta’s credit rating further into junk territory, citing a lack of progress in refinancing upcoming debt maturities. Talks with bondholders have been productive, according to Davis, but specific terms have yet to be finalized.
The decision to split the conglomerate and the ongoing debt negotiations are separate, but refinancing is expected to become more feasible for the individual entities once they are separated.
Vedanta is facing close to $6.2 billion in debt repayments within the next 18 months. However, there is skepticism as to whether the division of the businesses will significantly increase their overall valuation. Lakshmanan R, a senior research analyst at CreditSights, believes that investors are already aware of Vedanta’s refinancing risks, so the potential for additional valuation may be limited.
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