After delisting failure, the focus will shift to Vedanta’s dividend payouts2 min read . Updated: 12 Oct 2020, 10:01 PM IST
It is evident that corporate governance issues are weighing heavily on Vedanta’s valuations
MUMBAI : Shareholders of Vedanta Ltd saw their hopes dashed as the company’s delisting failed, which is reflected in the over 20% drop in Vedanta shares on Monday. The company’s shares now trade at ₹97 apiece.
Note that Life Insurance Corp. (LIC) pegged Vedanta’s per share value at ₹320. This created an enthusiasm among shareholders that the final discovered price would be higher.
A report by Shareholders Empowerment Services had pegged the fair value of the shares at between ₹236 and ₹310.
Even if these prices seemed over-optimistic, a number of investors were fine to sell at around ₹150 per share.
The delisting failed because the number of shares tendered—about 1.24 billion—was lower than the minimum 1.34 billion required.
“Unconfirmed bids proved to be a spoilsport. Had those bids got confirmed, the reverse book building would have discovered a price. There is a lack of clarity as to who were these bidders and why these bids (123.2 million shares) remained unconfirmed despite an opportunity to get a decent exit price," said Shareholders Empowerment Services in a note released after the delisting failure.
Still, all is not lost for shareholders. Vedanta holds close to 65% in Hindustan Zinc Ltd. On paper, this stake itself is worth more than ₹54,500 crore, significantly more than the current market cap of Vedanta of about ₹36,000 crore.
For existing shareholders, the focus will once again shift to debt maturity, dividends and corporate governance, say analysts.
“While payouts are not the most efficient way to upstream cash, it can mitigate cash flow issues at the Vedanta parent level, without any corporate governance flags. However, it needs to be seen if the management decides on dividends or favours inter-co loans (adequate cushion as per Section 186 of the Companies Act)," said Ritesh Shah at Investec Securities in a note.
Shareholders have also voiced concerns that Hindustan Zinc’s dividends have not been paid out recently. Addressing these concerns is critical for Vedanta’s valuations.
“The management’s ability to restore minority shareholders’ confidence is key to retaining/re-rating trading multiples. We find the failed delisting is an additional scar, in addition to recurring corporate governance issues," said the Investec Securities note.
It is evident that corporate governance issues are weighing heavily on Vedanta’s valuations.
At one end of the spectrum, large investors such as LIC peg the fair value of the stock at ₹320; even otherwise, ₹160-180 was considered as fair value by the Street, which also saw bidding in a similar range.
Still, the current traded price stock levels of below ₹100 shows that investors are worried about realizing the true value of their investments due to the above-mentioned concerns.
Note that Vedanta is also out of major indices such as the Nifty 50. This would additionally weigh on the stock in the longer run.