Vedanta Business spinoff may not affect credit quality of parent:

Vedanta Business spinoff may not affect credit quality of parent:

The spinoff of Anil Agarwal-led Vedanta Limited’s (VDL) business into separate listed companies, resulting in three newly listed entities, mirroring VDL, is unlikely to impact Vedanta Resources’ credit quality, it said. assuming this is currently expected. This is because the economic interests of Vedanta Resources Ltd (VRL) across all businesses will remain unchanged, a Moody’s report said on Monday.

Vedanta Limited (VDL), a 65.2 percent owned subsidiary of Vedanta Resources Limited, announced that its board of directors has been constituted to evaluate potential spinoffs of its aluminum, iron and steel, and oil and gas businesses into separately listed companies. A subcommittee has been constituted.

After a subcommittee’s evaluation of a potential spinoff, the board may also consider other options such as a strategic partnership that would unlock value for its shareholders in its businesses.

The spinoff will be subject to the approval of the regulators, the company’s board, shareholders and creditors.

VDL noted that its board’s rationale in evaluating spinoff/strategic partnerships is to help unlock value for its shareholders and better transparency in the deployment of cash surpluses from each business toward reinvestment or dividends.

In the current structure, there is no separate disclosure on free cash flow generation by different businesses.

But as each entity will report separate financials after the spinoff, VRL’s consolidated profile will continue to reap the benefits of a diversified business model in maintaining profitability amid volatile commodity price cycles.

After the spinoff, the VRL Group will consist of five listed entities. Four of them, VDL and three newly listed companies will have the same shareholding. The group’s listed zinc subsidiary, Hindustan Zinc Limited (HZL), will continue to be 64.9 percent owned by VDL. VRL’s consolidated credit metrics remain unchanged as its economic interest in all of its businesses will be the same as with the spinoff.

“We expect VDL’s standalone debt to be transferred equally to the three listed companies,” Moody’s said.

Importantly, we expect VRL to continue to have management control over VDL and HZL, and for equal governance in the management of the newly listed companies, it said.

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