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What Could Be Vedanta’s Delisting Price?

Billionaire Anil Agarwal’s Vedanta Ltd.’s delisting offer opened on Oct. 5.

An employee fixes his goggles outside a ball mill at the Vedanta Ltd. Alumina Refinery in Lanjigarh district, Odisha. (Photographer: Dhiraj Singh/Bloomberg)
An employee fixes his goggles outside a ball mill at the Vedanta Ltd. Alumina Refinery in Lanjigarh district, Odisha. (Photographer: Dhiraj Singh/Bloomberg)

Billionaire Anil Agarwal’s Vedanta Ltd.’s delisting offer opened on Oct. 5. So far under 3% of the shares required for delisting has been tendered on the BSE.

Vedanta Resources has secured $3.15-billion in debt funding to fund delisting. This comprises $1.75 billion in a three-month term loan and $1.4 billion of three-year amortising bonds having 13% yield.

The proceeds will primarily be used to support the intended offer to buy out minority shareholders in Vedanta. Any surplus would be used to redeem a portion of Vedanta Resource Ltd.’s $670 million outstanding 2021 bonds. The bond proceeds will remain in escrow pending conclusion of the reverse book-building process.

Besides, Cairn India Holding Ltd. has extended the loan of $307 million (Rs 2,311 crore) to Vedanta Resources. Cairn India also has residual cash of Rs 5,465 crore.

With the free float of close to 169.73 crore shares excluding the American Depository Receipts and potentially available funds of Rs 31,401 crore, the delisting price works out Rs 185 apiece.

If ADRs holders seek to participate, they would first have to convert into domestic equity shares. That will increase the size the delisting offer to the extent of conversion of ADRs into equity shares.

Here’s how brokerages view the delisting price:

Citi Research

  • At $3.15 billion, the promoter would be able to buy the minorities (about 50%) at about Rs127 per share, close to the current market price.
  • Difficult to work out the delisting price.
  • Book value of Rs 147 per share (March 2020) could be a peg (floor price for the promoters to make a counteroffer).
  • There could be some dividend streaming to Vedanta Resources in due course.
  • Vedanta received $600m of dividend from Hindustan Zinc in May 2020.
  • See another potential dividend from Hindustan Zinc.

Emkay Global

  • Management reduced book value from Rs 189.63 per share to Rs 146.87 citing long-term concerns over oil prices.
  • The book value further reduced to Rs 89.38 per share as per the company’s calculation.
  • Write-off not warranted as oil prices have returned to the $40s a barrel range
  • A reversal of this write-off due to the recovery in oil prices will add Rs 42.76 to book value.
  • Then revised book value should return to its original price to Rs 189.63 a share.