Viceroy Shortseller Claims Ministry of Petroleum Objects to Vedanta’s Demerger Plan; Potential Regulatory Hurdle Emerges

Image Source: The Economic Times

US-based short seller Viceroy Research has revealed that India’s Ministry of Petroleum and Natural Gas has raised objections to Vedanta Ltd’s proposed demerger application at the National Company Law Tribunal (NCLT). Viceroy warns of significant financial risks, including government stake exposure and regulatory complications impacting the restructuring process.

Viceroy Research Flags Ministry of Petroleum’s Objection to Vedanta Demerger

Short seller Viceroy Research has publicly disclosed that the Ministry of Petroleum and Natural Gas has formally objected to Vedanta Ltd’s demerger proposal at the NCLT. This revelation intensifies the scrutiny on Vedanta’s ongoing efforts to restructure its business into multiple separate entities by spinning off its core operations such as aluminium, oil and gas, and base metals.

Viceroy’s latest communications to India’s Department of Investment and Public Asset Management (DIPAM) underline risks posed by Vedanta’s intention to acquire bankrupt Jaiprakash Associates Ltd (JAL) as part of the strategic restructuring. The short seller warns the acquisition and demerger could undermine government-owned assets including stakes in Hindustan Zinc (HZL) and Bharat Aluminium Company (BALCO) given the financial strain on Vedanta’s profitable units.

According to Viceroy, HZL and BALCO have experienced pressure to pay dividends funded by debt, exacerbating free cash flow challenges. Additionally, Vedanta reportedly faces outstanding statutory dues and environmental liabilities exceeding ₹4,800 crore, which could further complicate valuation and debt management post-demerger.

Key Highlights and Major Takeaways

Regulatory Objection: Ministry of Petroleum and Natural Gas objects to Vedanta’s demerger at NCLT, citing risks to government equity stakes.
Financial Risks: Viceroy warns of cash flow shortfalls, excessive debt-funded dividends, and liabilities potentially impairing profitability of key Vedanta subsidiaries.
Strategic Acquisitions: Acquisition of Jaiprakash Associates (JAL) criticized as "unviable" and financially burdensome for Vedanta.
Government Ownership at Risk: Stakes in HZL and BALCO could be compromised, highlighting exposure of public funds.
Ongoing Regulatory Challenges: Demerger hearings delayed amid objections, regulatory reviews, and scrutiny of statutory compliance.
Company Response: Vedanta has called Viceroy’s allegations “malicious and baseless,” emphasizing focus on business growth and dismissing attempts to undermine corporate strategies.

Conclusion

The Ministry of Petroleum’s objection to Vedanta’s demerger application, highlighted by short seller Viceroy, points to deepening regulatory and financial challenges for the conglomerate. These developments could delay Vedanta's restructuring roadmap and raise concerns about the safeguarding of government assets. Ongoing legal and regulatory scrutiny remains critical to watch for stakeholders and market observers alike.

Sources:Business Standard, Financial Express, Times of India, Reuters, Outlook Business

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