VEDANTA SAGA continues-- Open Letter to Lalita Gupte

SMALL INVESTORS’ WELFARE ASSOCIATION

      Email : SirenBajao@gmail.com  

Madam,

We were shocked to learn of your resignation from Vedanta Limited as Independent Director and Chairman of the Audit Committee.

 II. The Company release attributed this to “balance your work and other family commitments”. We find this hard to digest, considering the following:

(a)     In FY 19-20, there were just 7 meetings of Vedanta Board and Audit Committee

(b)     The Company was paying you an excellent sum of Rs. 85.50 Lacs

(b)    You have not resigned from any other company

(c)    You were only nine months away from completing your second and final term as Independent Director of Vedanta

The above suggests that there is more to your resignation than meets the eye. This kind of act of kicking such a hefty sum for relatively low amount of work is only done when conscience comes into play and when things make a person uncomfortable.

III. As Independent Director, your primary fiduciary duty was to the minority shareholders and you owe it to us to tell us the real reason for your resignation, else your sacrifice will go in vain. You have alert Finance Ministry, MCA, SEBI, Stock Exchanges and all the small shareholders. You have to also alert the Big Daddy –LIC that the company which they valued at 320 per share is almost at 70% discount because of the poor corporate governance.

IV. Was it the $ 956 Mn inter-corporate loan by Company to its parent company ? If so, was it that:

(a)    It was a FEMA violation to give an inter-company loan to below investment grade company overseas?

(b)    It was a diversion of funds from a public company to the promoter’s hands?

(c)    It was given at a nominal 7%pa when G-Sec rates are at 5.85%pa (while the promoter borrowed at 13%pa when 12m USD Libor is at 0.33%) i.e. given at rate other than arm’s length?

 

Even the auditors have qualified their audit report stating that there are “inherent uncertainties caused by the fact that the parent company has reported a material uncertainty relating to its going concern…” and hence expressed their inability to comment on the fair value of the loan asset. In simple words, the loan may never come back.

V. Was it that the Company violated its own Board approved Dividend Policy of upstreaming entire dividend of HZL to its shareholders?  

So far, Vedanta has up-streamed only 22% of the dividend received from HZL.  Vedanta Chairman Anil Agarwal publicly calls dividend pay-out its 50% public shareholders, as Leakage. To stop this Leakage and please the Chairman, the Vedanta Ltd Board has found a way to give HZL and Vedanta money to its promoters via inter-corporate loans?

 

VI. Were there other issues of compliance, governance and audit that compelled you to resign?

Or were you asked to resign?

Or did you resign due to other differences?

Surely, being an independent director for over 5 years and the Chairman of Audit Committee, you would have insights into all the wrongdoings of the company.

 

VII. Madam, you were our representative on the Board, you owe it to us. Please give us the true reasons for your resignation. We have stopped expecting anything from other so called Independent (sic) Directors. No so called independent director of the company, has your spine and uprightness to let go such huge personal benefits that too post retirement.

We were assured  that with Mrs. Lalita Gupte on the Board, she will protect our interest, she is the torch bearer of corporate governance.

Your silent resignation will only propel the Vedanta promoters and its Board to even more blatantly violate corporate governance norms.

Will  your conscience allow you to let your massive sacrifice go to waste without achieving the result, it set out to achieve? Protection of small shareholders can only be achieved if you make the public announcement of your reason for resignation.  

 Kahlil Gibran once said; sometimes in life, it becomes your duty to help remove the stone over which you stumbled, so others don’t. In such situations, keeping silent is not an option. For a conscientious person like you, it may actually weigh heavily on you.

 For Small Investors' Welfare Association

VEDANTA DIVIDEND UPDATE

Late last night again after 10 pm, Vedanta informed the Stock exchange that their Board is meeting on 24th October 2020 to consider first  Interim Dividend.  The calculation shows that Vedanta received Rs. 4526 in May and  Rs. 5843 crores it will get in October total Rs.10369 crores divided by  37 1.72 crores issued number of shares, the dividend per share from Vedanta  can be as high as 27.90  just on distribution of Hindustan Zinc dividend.

VEDANTA: MASSIVE DIVIDEND COMING

 AA has started milching the cash cow—Hindustan zinc Ltd.

Yesterday (15.10.20) night at 2215 hours, Hindustan zinc (HZL) informed stock exchanges that it was modifying its agenda for Oct 20 board meeting to include interim dividend.  This is a typical AA style. First on 13.10.20  at around 10.12 he simply informs about the Board meeting keeping us guessing DIVIDEND NAHI DEGA?  After making our palpitations go high, now is the time for Vedanta shareholders to rejoice. Fortunately the pipeline to the London HQ of the parent passes through us. My calculations show a minimum dividend of 50 from Vedanta. 

1. In June this year, HZL took credit rating from Crisil for Rs 16,000 Cr borrowings via CPs and NCDs. Added with its recently enhanced bank borrowing limits (fund  & non-fund based) of Rs 2900 Cr AND its June 30 Cash & equivalents balance of Rs 15,480 Cr, gives an aggregate firepower of Rs 34,380 Cr. Theoretically, it can easily translate to a massive dividend of Rs 30,000 Cr or Rs 71 per share. At 64.9% holding in HZL, Vedanta could get cash inflow of Rs 19,470 Cr.

2. In May earlier this year, HZL had given an interim dividend of Rs 16.50 per share or Rs 6971 Cr of which Vedanta received Rs 4524 Cr (64.9% holding). This was not passed on to Vedanta shareholders despite a clear dividend policy and Anil Agarwal has been facing shareholder ire from Vedanta shareholders.

3. The aggregate of items 1 and 2 work out to Rs 23,994 Cr potential dividend from Vedanta to its shareholders i.e. Rs. 64.50 per share (371.7 Cr shares outstanding in vedanta).

4. With the failure of de-listing and with egg on his face of shareholders massively losing out (share price fell from Rs 140 levels to Rs 95 levels in a matter of days in last one week), Anil Agarwal faces an uneasy bond with his own shareholders with whom he now has to live on. There is an urgent need to appease his fellow shareholders and Vedanta’s dividend policy explicitly states that HZL dividend received will be passed on to Vedanta shareholders. This is also to help the cash starved parent facing default.

5. Against the calculation of a potential Rs 64.50 per share dividend as per item 4 above, one should definitely expect a Vedanta board meeting shortly to declare Rs 50 per share dividend to Vedanta shareholders.

Delisting Counter Offer- should be fair to investors as well-Vedanta

Re. VERY URGENT AND IMMEDIATE PLEASE. Delisting Regulation- Vedanta

The apprehensions as expressed in my letters dated 4^th July and 2^nd July 2020, all came true. The massive delisting exercise, the biggest ever in the country is failing. This I feel also a failure of the SEBI Regulations to keep pace with the evolving situation.

Majority of the investors in the share market do not have such a long term vision or appetite as LIC . Many small investors are staring at a massive loss of their wealth. The share price of Vedanta has already slipped down from 140 to 112 and it's likely to go down further.

The counter offer process as it stands now, is unfair to the small shareholders. While the promoters get the second chance to revise their offer upwards, the shareholders do not get the chance to revise their bid downwards. A fair second chance should be given to both.

SEBI should allow counter offer to the Vedanta  promoter in case they are  willing to do so. The Delisting exercise was just a touch and go affair with numbers showing under 137 crores shares received, yet with confirmed bids the book  fell short of 134 crs. While you should investigate the reason for this mismatch and take appropriate action, you should permit the promoters to make a counter offer.

I have, in the past also, suggested that for allowing the counter offer, the crossing of threshold of 90% should not be made compulsory. As a matter of fact, the “discovered price” is not defined anywhere in the regulation and in the past it was taken as the price at which highest number of shares were offered(Alfa Laval delisting). It is against the interest of the small shareholders who are not given a second chance to revise their bids  lower.  The counter  offer  will give them this much demanded second chance.

VEDANTA DELISTING- Ground check

Now that the investors have got all kinds of GYAN about valuation and the likely exit price, it is time to do some ground check.  The price of 150 or 200 or 300 investors will be able to get only if the promoters are able to cross the  threshold of 90% i.e. they get a minimum of 134.78 Crs. shares in the offer. Every investor must ensure that he participates in the offer at whatever price he feels he deserves, be it 100 or 1000, but participate he must. What are the hurdles? Just ensure that:

1.       All your shares are free- if they had been pledged, get them unpledged immediately.

2.       Check with your broker; the cut-off time. Some brokers do not accept the tendering requests on the last date. Some others have a cut-off time of 10.30 am on the last date.

3.       The success of the offer depends upon LIC. If you want to be aware of LIC’s bidding, check for the bid size of 23.66 crs.

4.       The bidding details can be viewed on the link given below:   

https://www.bseindia.com/markets/publicIssues/BSEBidDetails_ACQ.aspx?flag=ec&Scripcode=5255

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ACCELYA OFFER OPENING ON 5 OCTOBER 2020, CASE FILED

Further to my post of Saturday, September 26, 2020, I am happy to inform that I have filed an appeal in SAT on 28 September 2020 seeking  additional interest of Rs. Rs.63.21 being further Interest @10% per annum for the additional  period of delay of 224  days.  There is a delay of 270 days in the offer but the acquirer is paying interest for only 46 days.  All investors should pray and hope for justice from SAT.

 It is clarified that the offer will not be delayed. Investors will be able to tender their shares, they will either get Rs.1042.99 the original offered price; in case we are successful and  SAT sets to correct the mistake of SEBI and directs for payment of additional interest, investors will get RS.1106.20 per share

VEDANTA DELISTING-- what price?

Vedanta  PA was announced today. Anil Agarwal has now climbed the conveyor belt with no stop button. RBB opens on Monday October 5 and closes Friday October 9. Deadline for counter-offer is Tuesday October 13. 

 The million dollar question is: Will the delisting be successful ?

What price?

Straight acceptance like Hexaware ? or

AA make  counter offer ?

 The biggest joker in the pack is LIC, holding 6.37% of the issued capital. Without their participation, it is highly unlikely that the delisting offer will sail through. Analysing their purchases, it appears that they may have purchased almost half their holding or 15.35 Crore shares at around Rs. 250 or thereabouts, in the quarter ending 30/6/17 (price at opening of the quarter was around Rs. 269 and closing of the quarter was around Rs. 249), it is highly unlikely that their average cost of all their purchases would be less than Rs. 175. Will they submit a bid at less than that? Merchant banker friends tell me that LIC do not offer shares below the cost . On the other hand they add some amount of interest as well at a very low rate, may be 5-6%.

 

Vedanta won an award of  $ 499 Mn against Govt of India in Supreme Court just two weeks back.  Huge impairment was taken in Q4 results based on then prevailing price of  crude oil at around $ 20, it is now $ 40. Pricing of some of its key products have corrected favourably since the delisting was announced. All these, point towards a brighter future for Vedanta and hence perhaps a greater appetite of Vedanta promoters to make the delisting successful. S&P has already stated that delisting of Vedanta will be a positive for ratings of the parent UK company making the delisting offer, another reason for Anil Agarwal not to baulk at the discovered price. 

 

Question therefore is that beyond the $ 3.15 Bn already raised (Rs. 128 per share of Vedanta), where is the money ? The only source of additional funding for the promoter company for delisting is the dividend from Vedanta Ltd, which has given dividend in FY 20 significantly below its dividend policy. Obviously, they are waiting for delisting though reason given was the pandemic. Anil Agarwal publicly labels the dividend paid on  49%+ public shareholding of Vedanta as “a leakage”.

 

HZL is readying its war chest to pay a massive dividend to Vedanta Ltd which in turn will pay a massive dividend to the UK parent post the delisting. Crisil ratings have already been obtained for 15,500 Cr of borrowing. HZL Committee of Directors last Thursday- 22.09.20, approved a Rs 5000 Cr NCD issue, including greenshoe. Together with the 20,000 Cr cash it is already sitting on, they could give a dividend of Rs 35,500 Cr from HZL. This comes to a dividend of Rs 84 per share from HZL to Vedanta. If this 35,500 Cr  dividend is supplemented by about Rs 15,000 Cr cash & existing borrowings available with Vedanta, that makes it  50,500 Cr dividend possibility. Post delisting, Vedanta may pay this as a dividend of Rs 136 per share. This would hugely supplement the firepower for the promoters to make a sweet deal for delisting, far beyond the Rs. 128 per Share that the $ 3.15 Bn indicates. The market knows this and may therefore not be willing to tender below Rs. 200. 

This delisting is of strategic importance to Mr. Agarwal's future plans for many reasons, will he let it go for Rs. 25 per share ? Or Rs. 50 per share ? This may be his only shot, he may not even make a counter-offer. We expect the delisting to be between Rs. 175 and Rs. 200 per share. But then never underestimate AA.