Anil Agarwal announced a vertical split of different businesses into six different entities in the group’s pursuit of ‘unlocking value’. But lenders say this would reduce the fungibility of cash flows across businesses and increase earnings volatility, which is a cause for concern for them.

The demerger reverses Agarwal’s past efforts (during 2012-17) of consolidating stakes in different businesses and contradicts the rationa

Agarwal’s holding company Vedanta Resources has a high leverage problem, and the funding gap for upcoming bond maturities is a key concern for its investors. Analysts believe the divestment of non-core businesses is the need of the hour. The demerger, by itself, is unlikely to unlock any value, per analysts who asked investors to exit given the unfavourable risk-reward ratio

As per the plan, the scheme of the arrangement will result in the listing of six different entities: Aluminum, Oil & Gas, Power, Steel and Ferrous Materials, Base Metals and Vedanta Limited. Vedanta will transition to become the holdco for Hindustan Zinc and incubator for new businesses (including display fab and semiconductor forays). The management believes the demerger would unlock value, as it would create investment opportunities for investors looking for exposure in a particular business, besides which each shareholder of Vedanta will receive one share of each of the six entities.

Along similar lines, HZL has also initiated a comprehensive review of its corporate structure, with an intention to create separate legal entities for the Zinc-Lead, Silver and Recycling businesses. The company’s various businesses are for sale, including an iron-steel-copper plant in Tamil Nadu, but there are no takers. Analysts expect the group to sell a stake in its oil and gas arm, Cairn India, to repay the promoter’s debt.