Vedanta promoter group looks to increase stake by 10%, move aimed at another delisting attempt?

Anil Agarwal-led Vedanta Ltd saw its share price tumble 3.3% to trade at Rs 176 apiece days after the promoter group announced an open offer to increase its stake by 10% in the commodities giant. Promoter Vedanta Resources Ltd informed bourses on Saturday of a voluntary open offer for the acquisition of up to 37.17 crore equity shares together with Twin Star Holdings Ltd, Vedanta Holdings Mauritius Ltd, and Vedanta Holdings Mauritius II Ltd — all indirect subsidiaries of Vedanta Resources. However, the offer price of Rs 160 per share, at a discount to the current market price, has been termed as ‘poor’.

Towards delisting or optimism on commodity prices?

The move to increase shareholding comes weeks after the promoter group bought 4.98% stake from the open market at Rs 150-160 per share. “We see Vedanta’s open offer to buy ~10% stake as a step towards another attempt at delisting,” brokerage and research firm Motilal Oswal said in a note. If the offer goes through, Vedanta’s promoters will increase their stake in the company to ~65%, according to the note. Some analysts do see the attempt to increase stake as the firm’s optimism about the commodity price cycle.

Also Read: Vedanta shares surge 13%, hit 52-week high as promoters make bid to scoop up shares from open market

For the offer, Vedanta Resources along with its subsidiaries would have to shell out Rs 5,950 crore. The firm said that it has adequate financial resources to meet the obligations and have made firm financial arrangements for financing the acquisition of the equity shares tendered in the Open Offer. Earlier, last month, the promoter group had raised $ 1 billion at 13.86% by selling notes due in 2024 in the market. Along with that, the entire promoter holding of the Vedanta has also been pledged. Vedanta Resources, the promoter, has a net debt of $ 7 billion and has debt maturities of $ 2.5 billion till June 2022, Motilal Oswal said.

Attractive dividend play?

Since the beginning of November, shares of Vedanta Limited have surged more than 80%. This makes analysts at Edelweiss Securities believe that there is little room for further upside. “We are downgrading Vedanta to ‘HOLD/SP’ as the stock has achieved our fair value of Rs 170. In light of the unattractive open offer price of Rs 160 apiece, we believe upside potential is limited despite our positive view on the commodity cycle,” they said.

However, despite this, the brokerage firm finds Vedanta a dividend play. “The promoter group’s increased indebtedness to fund the share purchase of Vedanta would lead to higher cash needs. Hence, we expect VEDL’s dividend yield to sustain within 8–10%,” they added. Edelweiss does, however, expect the stock to suffer from the promoter group’s continual endeavours to increase their stake in the company.