Hedge Fund Alleges Vedanta Unit ‘Siphoned Off’ Funds to Parent

A hedge fund shareholder of Vedanta Ltd. has asked the Indian commodities firm to recall a $956 million loan to units of its parent, setting the stage for a battle with billionaire Anil Agarwal.

The loan represented an “improper transfer of value” away from minority shareholders to Agarwal-controlled Vedanta Resources Ltd., London-based hedge fund Kyma Capital, which owns less than 1% in Vedanta, wrote to the company late Wednesday.

“This is a clear-cut case of siphoning off funds and value that belongs to Vedanta Ltd., and all its stakeholders,” said the fund, which is run by Akshay Shah, a former Blackstone Group Inc. manager.

Representatives for Vedanta didn’t respond to an email and calls for comment. The unsecured loans were extended mainly as cash management activities for better rates, Vedanta Chief Financial Officer Arun Kumar had said in a call with analysts Nov. 6. Following a $207 million repayment by June 2021, about $300 million will be repaid each year, he said.

The hedge fund’s objection comes as Agarwal’s holding companies including Vedanta Resources face a combined $1.17 billion in debt that’s maturing next year, according to Bloomberg-compiled data. The billionaire’s attempts to take Mumbai-listed Vedanta private failed just over a month ago, prompting credit-rating downgrade warnings on concern about the funding needs of Vedanta Resources.

Kyma Capital also asked Vedanta’s board to start a special independent audit into the loan, according to its letter that was released in a public filing. The hedge fund highlighted the resignation of an independent director on the board, and questioned the choice of “obscure” auditors based in Gurgaon in northern India that it said had no statutory authorization to audit the Jersey-headquartered unit that made the loan.

While the loan was made to Vedanta Resources over a period of time, a large chunk--$430 million--was lent since Sept. 30, according to the company’s most recent quarterly earnings disclosures last week.

Vedanta’s shares have fallen about 32% this year. “Vedanta trades at a massive discount to its fair value also due to concerns over the high debt levels at the promoter entities, especially Vedanta Resources,” according to Rahul Jain, an analyst at Systematix Shares & Stocks.

Kyma, which was founded by Shah in 2018, has a history of activism, previously publicly voicing opposition to the debt restructuring plan of Spanish gaming firm Codere SA, whose bonds it owned.

©2020 Bloomberg L.P.

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