Proxy advisory firm InGovern said the report published by the US-based short seller Viceroy on Vedanta Resources is ‘one perspective among many’ and cautioned shareholders to weigh Viceroy’s claims against broader evidence and disclosures.
There are several prominent enterprises, both in India and abroad, which have structures similar to Vedanta – the holding company uses subsidiary cash flows and dividends for debt servicing at the parent or holding company level, it said.
“This is a common structure, especially in capital-intensive industries such as infrastructure, natural resources and utilities,” the InGovern report said.
Viceroy’s 87-page report had alleged that Vedanta Resources, the UK-based holding company of India’s Vedanta Ltd, is ‘systemically draining’ the subsidiary, taking the group to the brink of insolvency.
“Infrastructure, mining, and energy businesses require large upfront investments and often operate through holding company structures for regulatory, tax, and operational reasons,” InGovern said, adding that parent companies often raise debt at the group level (sometimes at more favourable rates) and use subsidiary cash flows for servicing, which is disclosed and regulated.
“This model is not unique to India — most large conglomerates globally use similar structures, as seen with Glencore, Anglo American, and BHP,” InGovern said in its note.