Vedanta Prepares Rs 30,000 Crore Fund for Debt Reduction and Growth

Anil Agarwal-led Vedanta Ltd has amassed Rs 30,000 crore through recent financial activities, including a qualified institutional placement (QIP), offer for sale (OFS), and dividends. Sources indicate that the funds will be used for deleveraging and growth. The Rs 8,500-crore QIP, Rs 3,200-crore OFS from Hindustan Zinc Ltd (HZL), and Rs 5,100 crore from the second interim dividend, along with existing cash reserves of Rs 13,000 crore, contribute to this war chest.

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Vedanta's debt stood at Rs 61,300 crore as of June 30. The company aims to use the funds for accelerated debt reduction, enhancing its capital structure, and pursuing transformational projects. An analyst noted that these efforts align with Vedanta's near-term USD 10-billion EBITDA target and potential inorganic growth opportunities.

Strong Financial Performance

Vedanta reported robust quarterly results. For the first quarter, profit after tax surged by 54% year-on-year (YoY) and more than doubled quarter-on-quarter to Rs 5,095 crore. The company achieved record alumina production at Lanjigarh and mined metal production at its Zinc India unit. Structural changes and other initiatives helped reduce overall production costs by 20% YoY.

The proceeds from the private placement of non-convertible debentures and promoter stake sales between February and June, amounting to a cumulative 4.4%, will also aid in reducing group-level debt in the near term. This combination of strategic stake sales, debt reduction, and operational efficiency improvements indicates that Vedanta is on track towards deleveraging and generating free cash flows.

Transformational Projects

Two significant events are expected to support Vedanta's ongoing trend: the proposed demerger and a series of transformational projects. These projects aim to increase volume, integration, and enhance the range of value-added products across various businesses. The company's investment in these initiatives is anticipated to drive growth and expansion.

Vedanta is progressing with its demerger plans after receiving no-objection certificates from secured lenders and stock exchanges. The scheme has been filed with the National Company Law Tribunal (NCLT). The demerger is designed as a simple vertical split to unlock value and attract substantial investments into each demerged business.

By simplifying its corporate structure through the demerger, Vedanta aims to create sector-focused independent businesses. This move will provide investment opportunities for Indian and global investors, including sovereign wealth funds and strategic investors.