Vedanta clashes with hedge fund over $1bn loans deal

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A London-based hedge fund is calling on Vedanta Limited, the natural resources company controlled by one of India’s richest men, to recall almost $1bn in cash lent to its heavily indebted parent company.

Kyma Capital, which is run by Akshay Shah, a former executive at Blackstone Group, said it was “amazed” by the loans, “especially as it amounts to approximately 40 per cent of the current market value of Vedanta Limited equity held by minority investors”.

“The total money loaned for the benefit of one shareholder now amounts to $956m,” Mr Shah said in a letter sent to the board of Vedanta Limited this week.

It wants the board to launch a special independent audit into the loans and says its will raise concerns over accounting and corporate governance with the Securities and Exchange Board of India (Sebi) and other financial watchdogs.

Although Vedanta is listed in Mumbai, it also has depositary receipts trading in New York, bringing the company under the purview of US regulators including the Securities and Exchange Commission. 

Vedanta Limited and its parent company Vedanta Resources are part of the sprawling business empire of Anil Agarwal, a self-made billionaire. His interests range from oil to aluminium and other industrial metals such as zinc.

In May, the former scrap metal dealer launched a $2bn bid to buy out the 49.9 per cent of Vedanta Limited he did not already own. The offer was knocked back by minority shareholders in October, dashing Mr Agarwal’s hopes of securing full access to the cash generated by the company. 

This would have helped Mr Agarwal service the large debt burden of Vedanta Resources, which was listed in London until it was taken private in 2018.

Credit rating agency Moody’s estimates that Vedanta Resources has an annual interest bill of $450m and is facing $2.9bn in debt maturities between April 2020 and March 2022.

Vedanta declined to comment on the letter. But on a call with investors earlier this month Vedanta chief financial officer Arun Kumar said the loans were “extended primarily as part of cash management activities of the overseas treasury returning better rates and liquidity”. 

He said that $207m of the debt would be repaid by June 2021 and a further $300m each year until the loans were repaid.

This is not the first time Mr Agrawal has fallen foul of minority shareholders over the use of surplus cash. Vedanta Limited’s share price slumped in February 2019 after one of its subsidiaries bought a stake in miner Anglo American from Mr Agarwal’s private family trust.

Vedanta also said that deal was part of its cash management activities and claimed that the investment in Anglo was a better place to park cash than a “low-return” fixed foreign currency deposit.

In its letter, Kyma also noted the recent resignation of an independent director and questioned why the board had used an “obscure” accounting firm in Gurgaon in northern India to audit a Jersey-based subsidiary that made one of the loans.

“We would repeat that the only way this Board of Directors can try to absolve itself, is by: first, recalling immediately the $956m loans outstanding to Vedanta Resources and its subsidiaries, and second, commissioning an independent special audit by a ‘Big Four’ accounting firm,” Mr Shah said in the letter.

Shares in Vedanta Limited have fallen by a third this year, while some of its bonds are trading at around 60 cents on the dollar.