Vedanta Resources Debt Shorted By Viceroy Research Over Financial Mismanagement Allegations

Viceroy Research said on Wednesday it is shorting the debt stack of Vedanta Resources, the parent company and majority owner of Vedanta Ltd., alleging the group structure is financially unsustainable and poses a material risk to creditors.

The US-based short seller described Vedanta Resources Ltd. as a holding company with no major operations of its own, dependent on extracting cash from Vedanta Ltd. to meet its obligations.

Viceroy claimed this has forced Vedanta to take on increasing leverage and draw down reserves, weakening the value of the group's primary collateral.

The promoter holding in Vedanta is 56.38% as of March, according to the data available on BSE. Notably, almost the entire equity is pledged i.e. the shares are with lenders as collateral.

The report came ahead of Vedanta's annual general meeting scheduled on Thursday and sent its shares sliding by as much as 6.20% during the day to Rs 428 apiece on the NSE. It was trading 6.16% lower at Rs 428.2 apiece, compared to the benchmark Nifty 50 trading flat as of 12:08 p.m.

“Vedanta Resources' actions to meet its short-term obligations directly impair its creditors' long-term ability to recover their principal,” the report said, adding that the situation resembled a Ponzi scheme.

Viceroy alleged that the group has deferred large undisclosed liabilities and relied on new debt and accounting adjustments to remain solvent. It warned that a group-wide insolvency event was no longer a distant risk.

The report listed several concerns, including:

• Capital raised for new projects allegedly redirected to service Vedanta Resources' debt

• Interest expenses reported by Vedanta that allegedly exceed its stated rates

• Overstated asset values and cross-collateralisation of non-performing subsidiaries

• Systematic capitalisation of expenses, inflating asset values and profits

• Off-balance sheet items not disclosed in financial filings

• Alleged governance failures and questionable auditor choices

Viceroy also criticised Vedanta's proposed demerger plan, stating it would not solve the cash crunch and could burden the new entities with debt from inception.

Vedanta Group has dismissed the short-seller's report, calling it a “malicious combination of selective misinformation and baseless allegations” aimed at discrediting the group.

The company said the report was released without any attempt to seek a response from Vedanta and alleged it was created solely to trigger false market sentiment.