Corporate Grapevine     

Published: July 31, 2025
Updated: July 31, 2025

Vedanta accused of ‘cash siphoning’

Short-seller Viceroy Research has alleged that a joint venture involving the Vedanta group’s promoters is being used to divert funds from state-linked Hindustan Zinc Ltd (HZL) through a series of non-arm’s length transactions.

In a report, Viceroy claims that Minova Runaya Private Limited, a 49 per cent promoter-owned entity, was set up for the sole purpose of “siphoning cash from GoI-backed Hindustan Zinc Ltd.” The firm alleges that this structure resembles earlier arrangements like Serentica Renewables, which it says were used for “margin theft and favourable, non-arm’s length arrangements hidden from VRL’s creditors.”

According to Viceroy, HZL has been Minova Runaya’s only customer since inception, with a contractual obligation to source its entire requirement of ground support products from the joint venture. The research firm calls this a “promoter-mandated monopoly.”

HZL, the report says, bears the full input cost risk, while pricing is indexed to steel, crude oil, and inflation — “effectively guaranteeing Minova Runaya’s profits.” Despite supplying HZL since at least FY21, Viceroy notes that Minova Runaya did not manufacture anything until FY24, when it began making wire mesh. Its product line includes resin capsules, rock bolting systems and wire mesh — all of which Viceroy describes as “standardised and commoditised products readily available elsewhere for a lower price.”

‘SUSPECT MARGINS’

The joint venture, according to the report, has consistently posted gross margins of around 30 per cent, which Viceroy deems “unjustifiable,” saying it “effectively drains HZL of value for the Agarwals’ benefit.” These profits are reportedly split and distributed as dividends to JV partners Minova Minetek and Runaya Metsource —the latter owned by Vedanta’s promoter group.

In a particularly pointed claim, Viceroy states: “Minova Runaya consistently declares that HZL accounted for more than 100 per cent of revenues during the year. This is impossible under any accounting standard.” The report also flags discrepancies in related-party disclosures, noting that Minova Runaya claims to have sold Rs 544 crore ($ 63.7 million) in fixed assets to HZL since FY21 — figures that Viceroy says do not appear in the financial accounts of either party.

‘ROLE OF ADVISORS’

Viceroy Research has called out proxy advisors and rating agencies who have backed Vedanta’s governance. “The filings in this report cost Rs 449 ($ 5.25) to obtain, and the images of the factory have been available on its Google Maps profile since 2020. These red flags are neither well concealed nor complicated to understand.” The Vedanta group, Hindustan Zinc and Minova Runaya have not yet publicly responded to the allegations in the Viceroy report as of publication, barring an initial denial to the entire report.

JP MORGAN STANCE

JP Morgan has said that it is not going to get distracted by Viceroy concerns regarding financial management and governance practices at Vedanta Resources and its subsidiary, Vedanta Ltd. In a note, the firm said that it remains ‘overweight’ on Vedanta Ltd with continued strong commodity prices, further de-leveraging and potential asset sales or equity raise. JP Morgan, however, has not disclosed its past dealings with Vedanta — especially the fees it earned in advising the group in various transactions.

“We have generally focused on Vedanta Ltd’s cash flows and earnings, excluding Hindustan Zinc, to unravel the key drivers of the credit. VDL (ex-HZL) reported EBITDA of $3.1 bn in FY25 and a net leverage of 2.2x. We struggle to see financial stress at VDL with these metrics. For HZL, net leverage was 0.1x. HZL has capex plans and we see net leverage going up to 0.5x,” the JP Morgan note said.