The Economic Times daily newspaper is available online now.

    Vedanta seeks time to get nod for transfer of reserves

    Synopsis

    The company had got equity shareholders' approval in October 2022 but is yet to get secured creditors' approval.

    Vedanta Seeks Time to Get Nod for Transfer of ReservesiStock
    Vedanta Limited on Friday sought more time from the Mumbai bench of the National Company Law Tribunal (NCLT) to seek secured creditors' approval to distribute its general reserves in order to enhance shareholder value.

    The company had got equity shareholders' approval in October 2022 but is yet to get secured creditors' approval.

    "We are seeking a longer adjournment to seek the approval of all creditors," argued senior advocate Guarav Joshi and Himanshu Vidhani of law firm Khaitan & Co on behalf of Vedanta. The division bench of judicial member Kuldip Kumar Kareer and technical member Anuradha Sanjay Bhatia, while allowing the company's request, adjourned the matter to May 19.

    Vedanta has accumulated ₹12,570 crore in general reserves over the years, which exceeds the company's foreseeable operational and business needs, according to a person familiar with the matter.

    The company said the NCLT has permitted companies to make such transfers through a scheme of arrangement under Section 230 of the Act. The tribunal had authorised the company to convene a meeting of equity shareholders on October 4, 2022. Its shareholders had approved the distribution of the general reserves as dividend that month.

    Separately, Vedanta Limited's board is scheduled to meet on March 28 to consider and approve the fifth interim dividend on equity shares for 2022-23. The company has already announced interim dividends of ₹12.5 per share in February (ex-date), ₹17.50 in November, ₹19.5 in July and ₹31.50 in April.

    "Vedanta is in the unfortunate position of cash flow being in operating companies and debt obligation in the holding structure. Distributions to holding companies lead to tax leakage. A scheme is an innovative way to create cash flow in holding companies to meet its debt obligation," said Sakate Khaitan, senior partner, Khaitan Legal Associates.

    Since cash flow is being transferred through a scheme it is possible that such transfer has a negative impact on operating companies' credit and, therefore, the scheme needs to be approved by 90% of creditors by value. NCLT approval is likely to take three-four months, said Khaitan.

    "Transfer general reserves to profit and loss account would be subject to and governed by the provisions contained in the underlying lending and security documents executed with the secured creditors," said Ketan Mukhija, partner, Link Legal. "Typically, where debentures have been issued to disparate holders, affirmative consent is required by at least three-fourths of such debenture holders."

    As previously reported by ET, Vedanta's parent company, Vedanta Resources, is said to be exploring the possibility of selling a 10% stake in the company. The move comes as Vedanta Resources looks to address debt maturities totalling around $4.1 billion in 2023-24, of which $1.6 billion is due in the first quarter, including US dollar bonds of $400 million in April and $500 million.

    Vedanta has been exploring ways to raise funds to meet upcoming maturities after the government opposed the move of the Hindustan Zinc Limited board move to buy THL Zinc Ventures, Vedanta's global zinc business, in a $2.98-billion cash deal. The government retains a 29.54% stake in Hindustan Zinc.



    (You can now subscribe to our Economic Times WhatsApp channel)
    (Catch all the Business News, Breaking News Budget 2024 News, Budget 2024 Live Coverage, Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more

    (You can now subscribe to our Economic Times WhatsApp channel)
    (Catch all the Business News, Breaking News Budget 2024 News, Budget 2024 Live Coverage, Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more
    The Economic Times

    Stories you might be interested in