Vedanta’s Steel Asset Sale Finalized by March 2024
In a significant move for the Indian metals and mining industry, Vedanta Limited, one of India’s leading natural resource companies, is poised to finalize the sale of its steel assets by March of the upcoming year, as announced by the company’s chairman, Mr. Anil Agarwal.
Vedanta has been a crucial player in India’s mining and metal sector, with diverse assets across aluminum, zinc, lead, silver, iron ore, oil, and gas.
The decision to sell its steel assets forms part of the company’s broader strategy to streamline its portfolio and focus on its core commodities, particularly aluminum, zinc, and oil & gas.
Vedanta’s chairman Anil Agarwal stated in an interview on Tuesday that the company will complete the sale of its steel assets by March of the following year. In June, the firm started reviewing its steel and steel raw material business, which it created in 2018 after purchasing ESL Steel for Rs 5,230 crore.
Vedanta’s steel business also consists of its domestic iron ore business and Liberia assets, other from ESL Steel. In order to concentrate on its core mining industries, the corporation has been exploring to sell the properties.
Agarwal stated that the firm will be able to satisfy its bondholder repayments in January and August of next year in an interview with CNBC TV18. Agarwal stated, “We are striving to minimise debt and make the firm debt-free.
In January, the corporation must return $1 billion, and in August, it must reimburse $500–600 million. “We are talking to bondholders, and we are making them secure,” he stated. According to Agarwal, the response to the sale of the iron and steel assets has been “phenomenal” and “can take care of entire debt.”
Either a new loan would be obtained for the debt, or the business would pay the amount. He declared, “Refinancing is fully lined up.”
Vedanta Resources, the parent company, is in financial trouble due to $6.4 billion in unpaid debt. S&P lowered the company’s long-term rating, as well as the issue rating on its outstanding debt, to “CCC” from “B-” last Friday and put it on “CreditWatch Negative.”
“We think it is more likely now that Vedanta Resources will carry out a liability management exercise that meets our criteria for distressed status. This is especially true given that a $1 billion bond maturing in January 2024 is only half paid, according to the ratings agency’s report.
Prior to that, Moody’s downgraded Vedanta’s bonds from Caa2 to Caa3 and its corporate family rating from Caa1 to Caa2.
Vedanta’s stock rose up to 5.1% before reversing course. The day finished with a 3.73% increase. Prior to the announcement of the demerger, Vedanta and its subsidiary Hindustan Zinc both saw gains on Friday. Since then, at least four brokers—including CLSA and IIFL—have improved their rating on Vedanta.
The current firm will be divided into several organisations, including Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Ltd., in accordance with the proposed demerger. In exchange for one share of Vedanta, current shareholders will get an extra share of each newly listed company.
Like many companies in the metals and mining sector, Vedanta has accumulated significant debt over the years due to acquisitions and capital expenditure.
The sale of non-core assets such as steel can provide a quick inflow of capital, allowing the company to reduce its debt and improve its financial health.
Over the years, Vedanta has built substantial expertise and scale in its core segments. By divesting from the steel business, the company can redirect resources and management attention to these primary areas, thereby enhancing its competitive edge.
The steel industry globally and in India has been through cycles of booms and busts, with factors like global trade tensions and changing demand-supply dynamics affecting prices. Moving out of this sector could be Vedanta’s strategy to avoid this volatility.
While the specific details of potential buyers have not been publicly disclosed, several big players in the steel industry, both domestically and internationally, might be interested in this acquisition. The assets in question are expected to attract a premium given the quality and scale of operations.
Vedanta’s exit from the steel business is indicative of the consolidative nature of the steel industry in India. With large players looking to scale up and achieve cost efficiencies, we might see more such mergers and acquisitions in the future.
The announcement has been met with a mixed response from the market. While some analysts view this move as a strategic step that will enable Vedanta to strengthen its core businesses, others are adopting a wait-and-see approach, pending more details on the deal structure, the valuation of the assets, and the potential buyer.
The sale of Vedanta’s steel assets under the leadership of Mr. Anil Agarwal represents a major realignment of the company’s business strategy.
It underscores the need for businesses to constantly reassess their portfolios and make hard decisions to ensure long-term growth and shareholder value.
As the March deadline approaches, all eyes will be on Vedanta and the potential implications of this sale for the broader metals and mining sector in India.
