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The minority property owns a 50.14 percent stake in the company. On Wednesday, Vedanta shares were trading at Rs 90.50 in BSE as of 11pm (IST), an increase of 1.34 percent.
In early 2018, developers had withdrawn Vedanta Resources’ parent company from the London Stock Exchange (LSE).
The brokerage houses pointed out that Vedanta has a debt of almost $ 7 billion. Outside of this, almost $ 1.9 billion matures in the next 12-15 months. Vedanta is the sole operating entity of the company, which depends on dividends from the subsidiary to finance the interest obligations.
“The upward flow of funds through dividends has multiple leaks from the promoters’ perspective, given the 50 percent minority stake in Vedanta and the 35 percent minority holding in Hindustan Zinc. Exclusion at the indicative price would cost $ 2.2 1 billion and we believe financing would be possible based on potential additional annual dividend income of $ 500 million, ”said Kotak Institutional Equities.
To get off the list, Vedanta would need board approval. The meeting is scheduled for May 18. The company will then require the approval of minority shareholders through a special resolution adopted by postal vote. This would require at least twice votes in favor of the exclusion proposal.
In addition, Vedanta would need to obtain regulatory approvals in India and the US. Given its ADRs. Then you will set a final minimum price and start a reverse book-making process. The final starting price will be determined in such a way that it would increase the promoter’s participation to 90 percent. The company will have the discretion to accept or reject the final starting price.
“Covid 19 has had a serious impact on the metals industry, and Anil Agarwal is taking this opportunity to make the company private, which will provide his company with more operational and financial flexibility in a capital intensive business,” said Aamar Deo Singh, Head of Consulting at Angel Broking.
Motilal Oswal Securities said the high debt of Vedanta’s parent entity remains a concern. The brokerage maintained its neutral position in Vedanta with a target price of Rs 85 per share.
“A sharp correction in commodity prices due to the impact of the Covid-19 pandemic on demand does not bode well for the prospect of short-term earnings,” he said.
Kotak Securities said the gap between the developer’s offering and minority expectations could be significant as Vedanta has underperformed the overall market and its peers due to a drop in commodity prices, the disappointment in operating performance and high level of developer debt.
“In light of the above, the stock has been trading at a discount to the intrinsic value of its resources and assets or replacement value. In an exclusion event, the minority expectation could be closer to the replacement value or significantly higher than the recent share price. The success of the foreclosure will depend on the extent of this gap and the willingness of developers to close it, “said Kotak Securities.
Angel Broking’s Singh said India’s foreclosure rules suggest that if the developer’s stake exceeds 75 percent in the company, the shares may be withdrawn from trading on the exchanges.
“In a nutshell, all investors in the company, who have held company shares with high hopes, should be satisfied with what is offered to them as it does not leave them a great option,” he said.
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