NEW DELHI: US-based investigative financial research Viceroy Research has alleged that the entire group structure of Vedanta is "financially unsustainable, operationally compromised, and poses a severe, under-appreciated risk to creditors". In its report, Viceroy said that Vedanta Resources "resembles a Ponzi scheme".
Viceroy said on Wednesday it is shorting the debt stack of Vedanta Resources (VRL), the parent company and majority owner of Vedanta Ltd (VEDL). It described Vedanta Resources as a holding company with no major operations of its own, dependent on extracting cash from Vedanta Ltd. to meet its obligations.
"The core of our investment thesis rests on a simple but critical dynamic: VRL is a "parasite" holding company with no significant operations of its own, propped up entirely by cash extracted from its dying "host": VEDL."
"To service its own debt burden, VRL is systematically draining VEDL, forcing the operating company to take on ever-increasing leverage and deplete its cash reserves. This looting erodes the fundamental value of VEDL, which constitutes the primary collateral for VRL’s own creditors," the short seller stated in a stinging report.
Viceroy alleges that VRL's actions to meet its short-term obligations directly impair its creditors' long-term ability to recover their principal, a situation that resembles a Ponzi scheme where VEDL stakeholders, which include VRL creditors, are the "suckers".
It believe that this arrangement has pushed the entire group to the brink of insolvency, propped up only by a continuous cycle of new debt, accounting tricks, and the deferral of massive, undisclosed liabilities.
"New credit lines serve only to destroy the PropCo's only collateral, staving immediate insolvency at the expense of any chance of creditors recovering principal. The mechanisms used to maintain the illusion of stability are failing, and a group-wide insolvency event is no longer a distant risk," stated Viceroy.
Vedanta Group, led by billionaire Anil Agarwal, dismissed the short-seller's report, calling it a "malicious combination of selective misinformation and baseless allegations".
"It has been issued without making any attempt to contact us with the sole objective of creating false propaganda. It only contains compilation of various information, which is already in the public domain, but the authors have tried to sensationalise the context to profiteer from market reaction," said Vedanta.
Shares of Vedanta Ltd fell by as much as 8% intraday on Wednesday before recovering to end down 3.38%.
Net debt of $4.9%, interest expense at 16%
Vedanta also questioned the timing of the report and stated it is done to undermine the forthcoming corporate initiatives. The report came ahead of Vedanta's annual general meeting scheduled on Thursday. Vedanta is in the middle of trying to demerge the company into five separate listed entities.
Viceroy alleges that to cure its maladies, VRL has proposed a demerger of the entities it has rolled up through its decades-long acquisition strategy, which it now claims are more valuable individually. This fails to address the fundamental cash crunch and will saddle the resultant companies with unsustainable debts from their inception, said Viceroy.
As of March 31, 2025, Vedanta Resources' net debt on a standalone basis stood at $4.9 billion, according to its annual report.
"Despite trimming its gross debt by $3.6 billion (42%) since FY21, Vedanta Resources' effective interest rate has increased by 145% over the same period: from 6.4% to 15.8%. We cannot find any way to reconcile an effective 16% interest expense against Vedanta's disclosed borrowings. Vedanta Resources generates no operating free cash flow. Its interest and principal obligations are funded entirely through dividends and "brand fees' extracted from VEDL, neither of which is sustainable nor arms-length," added Viceroy Research.