Vedantha's financial engineerings

As Vedanta Group targets 1st April 2026 to complete its demerger into 5 separate companies, its stock is tracked more than before. Such attractions are not new to Vedanta which mastered the art of market actions. It is known for leveraging and de-leveraging, paying more dividends than its profits, and for strategic acquisitions such as Cairn Energy and Sterlite.

The company targets April 1, 2026, as the effective date for the demerger, with the new entities expected to list on Indian stock exchanges by mid-May 2026. This follows the National Company Law Tribunal's (NCLT) approval in December 2025, after shareholder, creditor, and regulatory clearances. The restructuring will create five independent, pure-play listed companies: the residual Vedanta Ltd (retaining base metals like zinc and silver via Hindustan Zinc), Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, and Vedanta Iron & Steel. Shareholders are set to receive one share in each demerged entity for every share held in the parent company, effectively resulting in a 1:5 entitlement structure.

Analysts expect the demerger to enhance market cap by 200% in a couple of years. The value unlock is expected with application of differential Price Earning (P/E) ratios, sum-of-the-parts rerating, elimination of conglomerate discount, concentration of capital, ringfencing riskier assets, and creation of more liquidity.

Vedanta was founded in 1979 by Anil Agarwal and listed in 2003. It is the world’s 2nd largest Zinc producer and has significant volumes in aluminium, copper, iron ore, oil & agas, and power. Its 2024-25 revenue was $16 billion (Rs. 1,45,000 crs) with 31% EBITDA.

Vedanta made huge gains from its copper business but is outside 30th rank globally. Anglo American Plc is an older copper player ranking globally 6th. While both have copper in common, Anglo American has 800 ktpa (kilo tonnes per annum) copper mining whereas Vedanta has less than 150 ktpa.

Anglo American, established in year 1917, is a diversified miner in copper, platinum, iron ore, nickel, coal, and is also into diamonds through its subsidiary De Beers. The global diamond market share of De Beers used to be 90% and later pared to 35% but continues as global top. Anglo American’s 2024-25 revenue is $29 bln (Rs. 2,64,000 crs) with 45% EBITDA.

In year 2017, Volcan Investments, the personal investment trust of Anil Agarwal purchased 13% in Anglo American with $2.4 bln. Those funds were mobilized by issuing Mandatory Convertible Bonds having synthetic exposure. This innovative instrument was engineered by JP Morgan. It was a 3-years GBP 2 billion issue with 3.75% coupon. Pledge of shares in Anglo was the security to the Bond holders. Bond redemption can be with cash or shares in Anglo American.

With 13% equity, Volcan became largest private shareholder of Anglo American, 2nd only to Public Investment Corporation of South African government, which owned 13.3%. The acquisition was a global sensation presuming that Vedanta may acquire Anglo American. In the past too, Anil Agarwal made many acquisitions of Govt entities including Konkala copper mines in Zambia, and BALCO and Hindalco in India. However, regarding Anglo American, Anil Agarwal claimed it as a passive investment.  

As per the share price history of Anglo American, Bond holders expected that redemption will be with cash. This was because, if Anglo’s share prices rise high, Volcan can sell them in the market for higher value and pay actual Bond amount to the Bond holders. Contrarily, if share prices decline and Volcan intends to exchange shares, Bond holders receive more shares. The structure facilitated secured coupon return to the Bond holders and safer upside to Volcan.

After Volcan’s investment, Anglo’s shares rose more than 100%. Volcan surprised the market by redeeming Bonds with shares in Anglo. Thus, without having any cash to invest in Anglo shares or to redeem Bonds, Volcan gained $500 million in a short span. Additionally, with 'economic interest holding structure' in the same transaction, Vedanta’s subsidiary Cairn gained another $100 million in 8 months.   

- Dr. Kishore Nuthalapati  The author is CFO of Bekem Infra Projects Pvt Ltd.