Vedanta Demerger Gets NCLT Approval; Shares Rise Over 4%

NCLT Sanctions Vedanta's Restructuring Plan

Vedanta Ltd has secured a crucial legal victory as the Mumbai bench of the National Company Law Tribunal (NCLT) approved its long-pending demerger plan. The decision, announced on Tuesday, allows the diversified oil-to-metals conglomerate to proceed with its plan to split into five separate, sector-focused listed companies. This approval marks a significant milestone in a corporate restructuring exercise that has been in progress for over two years, aimed at simplifying the company's structure and unlocking shareholder value. The market responded positively to the news, with Vedanta's shares climbing over 4% following the announcement.

The Demerger Blueprint

The approved scheme of arrangement will reorganise Vedanta's sprawling operations into distinct business verticals. The plan involves creating five independently managed and listed entities. These companies will focus on aluminium, oil and gas, power, and steel and iron. The residual Vedanta Ltd entity will primarily hold the company's valuable zinc and silver businesses through its subsidiary, Hindustan Zinc, and will also serve as an incubator for new ventures and technologies. According to the plan, existing shareholders of Vedanta Ltd will receive one share in each of the newly listed companies for every one share they hold in the parent firm.

A Protracted Journey to Approval

The path to securing the NCLT's sanction was not straightforward. While the proposal received backing from a majority of shareholders and creditors, it faced significant scrutiny from regulatory bodies. The Ministry of Petroleum and Natural Gas, in particular, had raised objections. The ministry expressed concerns that the demerger could complicate the recovery of government dues, particularly those related to Vedanta's RJ oil and gas block in Rajasthan. It also sought greater clarity on the disclosure of hydrocarbon assets and associated liabilities.

Vedanta maintained throughout the proceedings that it had complied with all regulatory and disclosure norms. The company successfully addressed the concerns raised by the ministry and other authorities, including the Securities and Exchange Board of India (SEBI), which had earlier requested revisions to the plan. The tribunal's final order indicates that it was satisfied with the company's responses and the overall structure of the demerger scheme.

Market Welcomes Clarity and Focus

Investors reacted with optimism to the NCLT's decision, driving Vedanta's share price up by 4.20% to close at Rs 572.50 on the day of the announcement. The rally reflects a long-held market belief that Vedanta's conglomerate structure has resulted in a valuation discount. Analysts have argued that the complexity of its diverse businesses, from mining to energy, made it difficult for investors to accurately value its individual parts. The demerger is expected to create a simpler, more transparent structure that could lead to a re-rating of the individual businesses as standalone entities.

Strategic Rationale for the Split

The primary goal of the demerger is to allow each business to pursue its own strategic path, tailored to its specific industry dynamics. Capital-intensive segments like aluminium and oil and gas will be better positioned to attract specialised investors and raise funds for growth projects. Similarly, mature businesses can adopt capital allocation policies, such as dividend payouts or debt reduction, that are best suited to their cash flow profiles. By creating distinct balance sheets and management teams, the restructuring is also expected to enhance corporate governance, transparency, and accountability across the group.

New Vedanta Group Structure

The table below outlines the proposed structure following the demerger:

Execution Risks and Debt Allocation Remain Key

While the NCLT approval is a major step forward, significant execution challenges remain. The process of disentangling shared corporate services, inter-company financial arrangements, and complex regulatory licenses is a considerable undertaking. Each new entity must establish its own independent financial and operational structures while adhering to sector-specific regulations.

A critical aspect that will be closely watched by investors and credit rating agencies is the allocation of Vedanta's consolidated debt among the new companies. The group's leverage has been a persistent concern for the market. An equitable and sustainable distribution of liabilities will be essential to ensure the financial health and creditworthiness of each demerged entity. Any perception of an uneven debt burden could dampen the initial positive sentiment.

The Path Forward

With the legal clearance in hand, Vedanta will now move to the final implementation phase. This will involve completing the remaining regulatory filings and undertaking the operational separation of the businesses. The company had previously extended the deadline for completing the demerger to September 30, 2025, citing the pending approvals. The success of this ambitious restructuring will ultimately be measured by the ability of each standalone company to execute its strategy and deliver sustainable performance in the long run.