Billionaire Anil Agarwal’s offer to delist Vedanta Ltd from Indian bourses through his Singapore holding company Vedanta Resources Ltd is likely to leave minority investors feeling shortchanged.
On Tuesday, Vedanta informed stock exchanges that its board will meet on 18 May to discuss the offer by its parent to buy out the public shareholders of the Mumbai-listed Vedanta Ltd at ₹87.5, a cash buyout offer of ₹16,200 crore.
Shares closed at ₹90.2 apiece today, leaving the offer price at a discount to current market price and way lower than the 52-week high of ₹179.95.
“For minority shareholders, this offer is coming at too low a price,” Dharmesh Kant, and independent market expert, told Mint. “It comes at the bottom of the metals cycle, so valuations are depressed. But minority shareholders have little choice in these matters. Minority shareholders will tenders their shares because given the uncertainty, there is very low visibility about the future. And there is high institutional and retail holding in Vedanta Ltd.”
Vedanta’s stock has taken a beating, much like other commodity players, during the covid-19 pandemic which saw lockdowns across countries leading to a slow down in economic activity and thus demand for commodities.
US crude oil prices briefly turned negative for the first time ever in April on a glut and lack of adequate storage. Prices of most industrial metals have been hammered, with the largest declines seen in copper and zinc, key metals for Vedanta in India.
Also, the covid-19 pandemic has led to a rout in equities, globally.
Vedanta’s stock is now down 40% from its high in January.
The promoter group owns 50.14% of Vedanta while the rest is held by institutional investors and minority shareholders. The promoter group has to acquire up to 25% more of the shareholding to voluntary delist the company from stock exchanges, according to rules of the Securities and Exchange Board of India.
Sanjiv Bhasin, director, IIFL Securities believes the intrinsic value of Vedanta’s stock is twice the current market level.
“In the last year and a half, Vedanta has been an underperformer, even though it has a good metals play with both ferrous and non-ferrous in its portfolio. Valuations are very cheap now and I think that’s what is driving the promoter to use this opportunity. VRL is getting these shares at a steal, especially when the metals cycle is just about to turn” Bhasin said.
“China’s production has fallen off and Indian metals players are in a sweet spot. Minority shareholders who exit Vedanta now will have to look at its peer group if they want to stay invested in metals,” he added.
Industry analysts believe that even though Vedanta Ltd has seen significant erosion in market capitalisation through the last year, its fortunes are likely to turn with the expected uptick in global metals prices
Vedanta Resources, meanwhile, has a large refinancing of $1.9 billion of debt securities on the cards even as international credit ratings agency Moody’s placed the company’s debt under review for downgrade. Yields on Vedanta Resources’s 1-year corporate bond have shot up in six months, from 6.628% at the beginning of November 2019 to 60.296% at the end of April.
Anil Agarwal has a track record of merging and delisting his companies.
In 2012, he merged mining firms Sterlite and Sesa Goa to form Vedanta. After his buy out of Cairn, Vedanta set in motion the process of delisting the cash-rich Cairn India in 2016 and merge it fully with self. In 2018, the parent group Vedanta Resources was delisted from the London Stock Exchange.
The company has said the delisting of Vedanta from BSE and NSE will simplify its corporate structure and give it more financial and operational flexibility. Earlier this year, Vedanta was looking for an energy partner to sell a minority stake in Cairn India but those plans were shelved after the pandemic-driven crash in global crude oil prices, bringing down Cairn’s valuations of its oil blocks.
The article was first published on livemint.com