Will Billionaire Anil Agarwal Pay More To Take India-Listed Vedanta Private?

Commodities tycoon Anil Agarwal’s plans to delist Vedanta Ltd. from the stock exchanges received a nod from the regulator this week that it can go ahead with the move.

In May, Vedanta Ltd. informed the Indian bourses that its U.K. parent, Vedanta Resources, which Agarwal took private in 2018, wanted to buy all its stock held with public shareholders and delist the company from the exchanges. At the time, Vedanta Resources, which owned just over 50% of the India-listed Vedanta Ltd., had made an indicative price offer of 87.5 rupees ($1.2), which was a 9.9% premium on the previous day’s closing price. To acquire the 49.9% it did not own would cost Vedanta roughly $2.2 billion.

However, in the months since that offer was made, the company’s shares have shot up nearly 60% and the stock was trading at 139.55 rupees on the day the company received its regulatory green light. During the same period, the S&P BSE Metal index rose about 37%.

Could this stock surge derail Agarwal’s delisting plans? 

The offer of 87.5 rupees is “a throwaway price,” says Sanjiv Bhasin, director of IIFL Securities. “The cycle has turned and metals are at a new high…Now the company has to realign its plans and decide if it wants to go ahead [which would require a higher offer price] or let go of the plans,” he adds.

The company didn’t respond to a request for comment.

In its May statement, Vedanta had explained that the delisting was in line with the process of “corporate simplification” that it had been pursing for several years. Various mining businesses had been merged in 2012 into Sesa Sterlite, which was renamed Vedanta Ltd., followed by the merger of oil and gas unit Cairn India with Vedanta Ltd. in 2017 in a $2.3 billion deal. This was followed by the delisting of holding outfit Vedanta Resources from the London Stock Exchange in 2018.

Delisting the Indian unit, as per the May statement, “is the next logical step in this simplification process” aimed at giving the group more operational and financial flexibility. It would also provide public shareholders “an opportunity to realize immediate and certain value for their shares at a time of elevated market volatility.” 

At the time of its announcement, Vedanta was still reeling from a slowdown in business caused both by the ongoing pandemic as well as from a global slowdown even before Covid-19 hit.

For the year ended March 2020 it reported a loss of 66,640 million rupees (after an exceptional item) on revenues of 835,450 million rupees. For that same period, the company also reported net debt of 212,730 million rupees. Its parent Vedanta Resources reported gross debt of $15 billion and net debt of $9.5 billion. Taking both into account, Fitch unit India Ratings & Research in May downgraded the listed company’s long term issuer rating to AA- from AA and gave it a negative outlook.

But commodity prices have rallied since then—largely driven by an uptick in demand in China. This casts some doubt on whether Agarwal can pull off this delisting at the original offer price.

Vedanta had to sweeten its offer to shareholders to conclude the Cairn India merger and it’s possible it may have to go the same route here as well. Since it announced its plans to delist, Vedanta Resources has raised $3.15 billion in bank loans and bonds, which gives it financial leeway to increase the delisting price.

Agarwal, who has a net worth of $3.4 billion, built his London-headquartered oil-to-metals conglomerate out of a tiny scrap metal business with some shrewd moves. The proposed delisting will test his mettle with investors.