Vedanta Ltd‘s decision to sell its 3.31% stake in its subsidiary, Hindustan Zinc Ltd (HZL), is expected to enhance the funds available for the mining giant’s debt reduction and capital expenditure, according to CreditSights on Thursday. The board of Vedanta Ltd approved the sale of up to 2.6% (11 crore shares) of its zinc subsidiary, valued at Rs 6,370 crore, on Tuesday.
The stake was later increased to 3.31%, potentially raising over Rs 8,000 crore based on the most recent trading prices. The sale, which will be conducted through an offer-for-sale process targeting both retail and institutional investors, will decrease the company’s holding in HZL from 64.92% to 61.61%.
CreditSights views this stake sale as a positive development for the company and its parent company, Vedanta Resources Ltd (VRL), as it will provide additional funds for debt repayment and/or capital expenditures. This reduction in debt is expected to ease VRL’s already high interest expenses.
However, the sale will lead to a decrease in the company’s future dividends from HZL, a key revenue source for the group over the years. Despite the successful restructuring of VRL’s bonds easing immediate debt refinancing risks, CreditSights anticipates that VRL will continue to face challenges accessing funding and maintaining a high interest burden.
The firm projects a funding shortfall of USD 850 million for FY25 and a significant portion of a USD 1.4 billion shortfall for FY26, which will be addressed through the recent promoter stake sale, Vedanta Ltd’s upcoming HZL stake sale, and a planned USD 1 billion equity raise.
Potential future funding options for the company include dividend upstreaming, brand fees from its companies, asset sales, bonds, or loans. Progress in Vedanta Ltd’s planned demerger might also be a modest positive for VRL bonds.
The decision to sell the HZL stake seems to be influenced by the recent surge in HZL’s share price. Nevertheless, this sale will reduce Vedanta Ltd’s future dividend income from HZL, historically a significant cash generator for the company.
In a surprising move, Vedanta recently chose to postpone the sale of its steel business, specifically the Electrosteel Steel unit, which was a crucial part of its asset sale strategy for debt reduction. With the funding gap addressed through equity raises, the company has become more cautious about selling assets, reflecting the promoters’ historical preference for expanding their asset portfolio rather than divesting.
Vedanta Ltd is a leading global natural resources company, engaged in mining, oil, and gas exploration. With operations spanning India, Africa, and Australia, it specializes in zinc, lead, silver, copper, iron ore, and aluminum. The company focuses on sustainable development, innovation, and value creation, driving growth through its diversified portfolio of high-quality resources.
