Spin-off plan can lead to cash flow transparency, according to Moody’s

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Moody’s Investors Service does not expect any change in the credit quality of Vedanta Resources Ltd. (VRL), headquartered in London, after the potential split of its main Indian businesses. The move is unlikely to change the economic interest of the group’s parent company in these units. The spin-off would, however, ensure greater transparency in deploying each company’s excess cash towards reinvestment or dividends, the rating agency said.

Earlier this month, VRL’s Indian subsidiary, Vedanta Ltd. (VDL), said its board is considering splits, splits and strategic partnerships to unlock value and simplify the ownership structure.

Current structure

VRL owns 65.2% of VDL (all encumbered elsewhere)

VDL owns

  • BALCO: 51%

  • HZL: 64.9%

  • Cairn India: 100%

  • Electro-steel: 95.5%

  • Others: 100%

Under the current structure, VDL, which is both a holding company and an operating company, does not make separate statements on the generation of free cash flow by the different companies, according to Moody’s. But after the potential spin-off, each entity will present its separate financial statements.

The consolidated profile of Vedanta Resources will continue to leverage a diversified business model to maintain profitability amid volatile commodity price cycles, the rating agency said.

In addition, he also expects the UK parent company to continue to exercise management control over VDL and Hindustan Zinc Ltd. and that it have the same governance in the management of new listed companies.


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