InvestorQ : What is this major tussle between Vedanta and a hedge fund over improper transfer of value?
Dawn Cherian made post

What is this major tussle between Vedanta and a hedge fund over improper transfer of value?

Mitali Bhutta answered.
2 months ago

A very interesting tussle is building up between Vedanta of the Anil Agarwal group and a major hedge fund called Kyma Capital. It pertains to a very elaborate scrutiny of a unit based in the British crown island of Jersey. Kyma is a shareholder in Vedanta and has claimed improper transfer of value from Vedanta Ltd to Vedanta Resources PLC.

Corporate governance issues are never new for the Vedanta group and they have had to contend with numerous such cases. But this appears to be more serious. According to Kyma, a loan of $956 million was channelled from Vedanta Ltd of India to its holding company Vedanta Resources of UK through Cairn India Holdings.

This had led to some panic among the bondholders of Vedanta as they felt that it was a signal of a liquidity crunch which also led to widening of spreads on the bonds. However, the company has denied possibility and has called the fall in bond prices purely a market reaction. There were also rumours that Vedanta wanted to extend its debt maturities.

Getting back to the loan case, Cairn India Holdings, through which the loan was channelled, is an offshore subsidiary in Jersey, an island near the coast of France. CIHL was investment vehicle owned by Cairn India but later the control of this company also shifted to Vedanta after Vedanta acquired Cairn India in the year 2011.Vedanta Resources acquired a controlling stake in 2011.

Now come the more complicated part. Vedanta has always wanted to leverage the resources of the cash rich Cairn group for its group expansion plans. For this purpose, Cairn India Holdings was serving as the conduit. The complaint by Kyma Capital has only accentuated the fears in the minds of investors.

In fact, Kyma had earlier flagged the change in auditors of Cairn India Holdings from Ernst & Young LLP to the lesser-known Indian accounting firm. VD & Co. Naturally, Vedanta has denied any involvement in transferring money through the back route.

Big investors including Kyma have alleged that Anil Agarwal used CIHL as a vehicle to park his economic interest in Anglo American Plc, originally bought by one of his London holding vehicles named Volcan Investments Ltd. The issue comes at a time when Vedanta Resources must repay $1.17 billion next year; the highest since 2017 raising cash flow worries.