Vedanta Demerger Faces Govt Pushback Over ₹16,700 Cr Dues

Vedanta Ltd. has had its proposed demerger placed under fresh scrutiny after the Indian government restated strong opposition, pointing to unresolved claims of approximately ₹16,700 crore that it says could be jeopardised by the restructuring. The company now faces a major question: can it push through its breakup plan while satisfying regulatory and government concerns, or will delays and uncertainty persist?

What Are the Government’s Objections, And Why Has It Flagged ₹16,700 Crore?

The government has raised multiple objections to Vedanta’s plan to split its business into several standalone entities. Key among those is the claim that certain liabilities and claims, totalling about ₹16,700 crore, remain unresolved and may not be safeguarded if assets are shuffled in the demerger.

The concerns are founded on two core issues:

• Asset coverage shrinkage: Before the demerger, Vedanta’s asset base was reportedly above ₹2 lakh crore, but the government says that after carving out parts of the business (notably oil & gas), the asset base of one unit would drop to about ₹29,150 crore, thereby reducing coverage for the claims.

• Non-disclosure of contingent liabilities: The Ministry of Petroleum and others state that some litigation, arbitration, and regulatory claims (such as those over oil blocks) are either under-reported or treated as contingent when they may materialise. For example, officials also pointed to ongoing arbitration related to the Rajasthan oil blocks, noting that payments of at least US $222 million (₹1,162 crore) may be due.

Because of these issues, the company tribunal (National Company Law Tribunal, NCLT) has reserved its order on the petition for the demerger, creating a significant roadblock.

What is Vedanta Trying to Achieve with the Demerger, and Where is the Delay?

Vedanta’s demerger proposal envisages creating separate listed business units for its aluminium, oil & gas, power, iron & steel, and base metals operations. The aim is to unlock value, simplify the corporate structure and help reduce group debt.

However, the timeline has been pushed back. The firm initially hoped to have the restructure completed by September 2025 before the regulatory and government objections, but it has now moved the deadline to March 2026.

What is the question behind the demerger? Since this restructuring may cause a shift in the assets, liabilities and cash flows across the business units, it potentially influences creditor rights, government claims, regulatory protections and tax treatment. The government’s objections are a reminder that larger corporate reorganisations require clear disclosure and protection of stakeholder interests. Earlier, shareholders reacted: Vedanta’s stock fell ~3% when the objections became public.

What Should Investors Watch as This Unfolds?

The evolving situation raises several practical watch-points for those following Vedanta or the broader metals & mining sector:

• Regulatory/ tribunal judgement: The essential one is the NCLT judgement. Any negative decision or other objections would further stall the demerger, influence timelines and investor expectations.

• Presentation of claims and liabilities: Investors will want to analyse how Vedanta records contingency liabilities, arbitration cases and government claims within its reports. How risk modelling will be informed depends on how transparent these disclosures are.

• Asset-liability mix after demerger: When both a business and a liability share some common high-value assets (e.g., oil and gas), then the shareholders will be affected by how value and risk are allocated between them.

• Market, commodity cycle/earnings effect: In addition to its restructuring, its operating performance (price of commodities produced by Vedanta, capacity expansion, capacity slowdowns in mining, etc.) will determine its value. The re-organisation introduces a structural risk.

• Timeline and implementation risk: A late demerger may be accompanied by a longer execution risk, and early separate listing may only happen in the case of regulatory approvals. Investors can consider time and cost risk.

Conclusion

The proposed demerger suggested by Vedanta Ltd. to open value and simplify its structure is subject to substantial headwinds due to the disapproval of the government based on unresolved ₹16,700 crore claims and the issue of its asset coverage and disclosure. The final decision will be based on the tribunal reporting, regulatory authorisations and company treatment of disclosures and stakeholder safeguards. Will Vedanta overcome this hurdle and go on with the demerger by March 2026, or will it encounter more delays and uncertainty among stakeholders?

References

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The Economic Times
The Economic Times