Vedanta: A Spinoff Plan May Result In Cash Flow Transparency, Says Moody’s

Moody’s Investors Service expects no credit quality change for the London headquartered Vedanta Resources Ltd. (VRL) after the potential spinoff of its key Indian businesses. The move is unlikely to change the group parent's economic interest in these units. The spinoff, however, would ensure better transparency in deploying cash surpluses from each business towards reinvestment or dividends, the rating agency said.

Earlier this month, VRL's Indian subsidiary, Vedanta Ltd. (VDL), said its board was considering demergers, spinoffs and strategic partnerships to unlock value and simplify the ownership structure.

Current Structure

VRL owns 65.2% of VDL (all encumbered by the way)

VDL owns

• BALCO: 51%

• HZL: 64.9%

• Cairn India: 100%

• Electrosteel: 95.5%

• Others: 100%

Under the current structure, VDL, which is both a holding and operating company, doesn't make separate disclosures on free cash flow generation by the different businesses, according to Moody's. But after the potential spinoff, each entity will report its separate financials.

Vedanta Resources' consolidated profile will continue to draw the benefits of a diversified business model in maintaining profitability amid volatile commodity price cycles, said the rating agency.

Besides, it also expects the U.K. parent to continue exercising management control over VDL and Hindustan Zinc Ltd. and have the same governance in management of the new listed companies.

Post Spinoff Structure

Moody's anticipates the spinoff will result in five listed entities under VRL.

This includes VDL, Hindustan Zinc and the three newly listed companies (aluminium, oil & gas, iron ore and steel) after the spinoff. The shareholding of the three new entities will mirror that of VDL, Moody's said.

Moody’s expects the Indian unit's standalone debt to be transferred to the three listed companies equitably.