Will the market like the announcement from on demerging its Aluminium, Iron & Steel and Oil & Gas businesses? One does not understand what is happening here. First they talk about delisting and now they are talking about the company splitting into four businesses?
The management announcement is taken with a pinch of salt by the markets. So, 10 years back, it was consolidation which was going to drive value creation and now they are talking about splitting it again. It is difficult to read. If I was to think objectively, the biggest value unlocking can happen if Hindustan Zinc shares held in Vedanta are distributed to individual shareholders.
The market cap of Hindustan Zinc is Rs 140,000 crore and Vedanta is Rs 125,000 crore. Vedanta is trading at a lower valuation than its own subsidiary Hindustan Zinc. Vedanta owns around 65% and normally as an analyst we used to put 20% holding company discount because of this minority 35% which is not there with Vedanta. If they were to distribute shares of Hindustan Zinc, then there is an immediate value unlock of around 20% which is Rs 28,000 crore for Vedanta shareholders. But the announcement does not mention anything about Hindustan Zinc. They are saying it will continue to remain in that left out piece.
If value unlocking was the big objective, then that one big part is missing. Number two, I would say obviously there are benefits to individual companies because suppose Vedanta is looking to bid for BPCL and if it was to be listed in India separately, they can get strategic shareholders to come in with some funding and they can bid for BPCL in that arm which will be difficult if you are bidding as Vedanta as a whole.
So there are some positives and negatives but see none of their moves have got shareholder approval. They have changed schemes in the past. I would say it is very early days right now. Let us wait and see what exactly comes out from the committee that they have constituted and then the shareholder vote hurdle needs to be cleared. So nothing to worry at the moment. Let us wait and watch.
What would be the best way to do this if it does go through? Are we going to see separate listings? Is it going to be demergers with cross holdings?
Earlier, when they had a similar structure which they are proposing right now, the major issue was fungibility of cash. They were taking loans from one company for another business etc. If they are talking about the same structure which was vertical demerger of various businesses, the big question will be whether they will treat cash as they were doing in the past? However, rules have changed and now there has to be a majority of minority for most of these approvals. But to a certain extent, one can still do ICBs to group companies.
What they are proposing right now may not go through the way they are thinking. Shareholders may not approve it until and unless Hindustan Zinc is also demerged and shares given out.
