Vedanta Shares Plummet: Alarming Debt Concerns Raised by US Short-Seller Shatter Investor Confidence!

The shares of Vedanta Limited faced a significant downturn, plummeting as much as 8.7% to ₹421, while Hindustan Zinc also saw a decline of 5% to ₹415. This drop followed a report by Viceroy Research, a US-based financial research firm known for short-selling, which raised alarm over what it termed “unsustainable debt” within the Vedanta Group. By the end of the trading session, the stock regained approximately half of its initial losses.

Viceroy’s report described Vedanta’s holding company, Vedanta Resources Limited, along with its intermediate entities, as akin to a “financial zombie,” boasting $4.9 billion in gross interest-bearing liabilities for FY25, yet lacking significant operational capabilities. The report claimed that these companies are effectively sustained by cash drawn from Vedanta Limited, amplifying financial risks for the Group.

The Vedanta Group issued a statement dismissing the Viceroy report as an “attack based on selective misinformation and baseless allegations,” alleging it to be a calculated attempt to manipulate market sentiment without any prior communication with the company. They argued that the report merely compiled publicly available information but distorted its context to capitalize on market reactions. They expressed concerns about the timing of the report, suggesting it could undermine upcoming corporate strategies.

Viceroy Research openly acknowledged its position as a short seller and indicated potential monetary benefits from the decline in Vedanta stocks. In its disclaimer, the report suggested that stakeholders should recognize along with its motives for publishing findings that could impact market perception.

The Viceroy analysis pointed out the growing financial burden on Vedanta Resources, noting that the holding company has increasingly relied on funds siphoned from Vedanta Limited. This practice, they argue, is unsustainable and raises concerns about the overall collateral value Vesanta offers to its creditors. They highlighted a significant revamp of financial liabilities, citing increased gross finance costs and a gradual decline in cash reserves.

Notably, former Rajya Sabha MP Swapan Dasgupta expressed skepticism about the motives behind the report, questioning whether there is a concerted effort by foreign financial entities to discredit Indian corporate institutions. He called for an investigation, citing various coincidences surrounding the timing and claims of the report.

The Viceroy report detailed a troubling trend: Vedanta’s gross finance costs and effective interest rates have consistently escalated from $1.3 billion at 7.2% in FY21 to $2 billion at 13% in FY25. Additionally, cash and short-term investments fell from $5.9 billion in FY21 to just $2.6 billion. This disparity indicates that while debt levels have decreased, net debt continues to rise due to disproportionately higher depletion of cash reserves.

Further allegations included claims that Vedanta’s proposed demerger might only exacerbate the Group’s insolvency problems by distributing the liabilities across multiple entities burdened with unmanageable debt.

Founded by Anil Agarwal, the Vedanta Group operates primarily in the natural resources sector and is a well-known conglomerate in India. The company’s shares are listed on both the Bombay Stock Exchange and the National Stock Exchange. As of July 5, reports indicated the release of encumbrances on a significant number of equity shares of Vedanta Limited, due to the full repayment of a financial facility.

Viceroy Research, established in 2016, has previously raised red flags concerning numerous corporations, including the notorious case of Wirecard that collapsed in 2020. Their recent findings about Vedanta suggest substantial discrepancies in reported financial figures, raising alarms about potential undisclosed liabilities that could impact investor confidence in the Group’s future.

In terms of dividends, VEDL has disbursed an excessive $10.7 billion since FY21, outpacing its available cash flow and leading to a $5.6 billion deficit over the span. The report criticized the company for its inefficient financial strategies that favor debt accumulation over sustaining operational integrity, particularly through questionable practices like artificially inflated brand fees.

As the situation unfolds, the scrutiny surrounding Vedanta’s financial health is likely to intensify, prompting investors and market observers to keep a close watch on developments.

Original Source: https://indianexpress.com/article/business/vedanta-shares-plunge-us-short-seller-unsustainable-debt-10115841/
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Publish Date: 2025-07-09 21:50:00