Learning from the first case

It may be recollected that back in 2020, Vedanta had made an attempt to buy back the outstanding shares of its India unit at Rs.87.50 per share. However, the large institutional investors like LIC were not convinced about the price. In fact, LIC refused to participate in the delisting offer unless a price of Rs.320 per share was offered. At that point of time, Vedanta was willing to go up to Rs.145/share but not much beyond that as a result of which the plan to delist the India unit was shelved by Vedanta. 

This time it is different

On the previous occasion, the large institutional investors had expressed a view that Vedanta was buying back its shares at the bottom of the metals cycle. This would have been a huge loss to shareholders, especially those who had held on to the stock through the cycles. Vedanta was keen to corner all the dividends that would be paid out by cash rich group companies of Vedanta like Hindustan Zinc. That would have given Vedanta access to 100% dividend pool at a very low cost, something that was unfair to shareholders. But, this time around, the price is much higher and that also reflects the metals cycle. 

Vedanta India has its problems

Vedanta has a plethora of problems in India despite owning a wide portfolio of commodity assets. Its Tuticorin copper plant continues to face environmental challenges and that is yet to get back to full operations. That stand-off continued despite the best legal efforts of Agarwal and his battery of lawyers. Secondly, the company paid a steep price for Cairn assets and has been struggling at a time when the oil prices have been volatile at best and tepid at worst. For Vedanta, the priority is to get 100% control of Vedanta India and gain full control over cash flows of group companies so that it can be used to defray group debt.

Just accept the offer

Many investors have been confused if they should accept the offer, since LIC had demanded a price of Rs.320 per share. The current price is nearly 3-times the price offered last year. Also, this is not a commodity super-cycle like 2003 and the recovery may not last much beyond 2022. After that it will back to lower growth rates. Hence, it would be naïve to expect a runaway rally in commodities in the future. This could be a good time to monetize your stake in Vedanta at a good price. Also, the group has been embroiled in serous corporate governance issues. On top of it, Vedanta Resources will be stuck with a $8 billion debt overhang. If you hold Vedanta, just think with your feet!