Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

In mid-December, eight trading days after Vedanta promotor Anil Agarwal said the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> and no plans to make an Open Offer, the promoter launched a block bid to buy 4.98% in a post-market trade. The shares had climbed more than 50% in the previous two months to Rs 150/share, but the deal got done at Rs 160/share.Less than three weeks later, two entities controlled by <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> announced an intention to conduct an Open Offer to buy another 10% of its main Indian-listed asset, VEDL at the same Rs. 160/share price as the clearing price. But by that time (9 January), the price had risen past Rs. 180/share as global market movements had propelled gains in cyclicals and commodity markets had propelled the underlying products.But even then, VEDL was quite cheap on a relative basis. The question was about the nature of the Open Offer. Was it a real Open Offer?  Or was it designed for another purpose in mind? We still do not know the answer, but on 18 February the stock reached a new 2-year intraday high, closing at Rs. 195+/share. And VEDL is still not expensive vs peers. Q3 results at both HZ and at VEDL ex-HZ were great. VEDL ex-HZ Operating Income was the highest since March 2014, and VEDL ex-HZ Net Income in Q3 was the second highest non-accounting gimmick Net Income ever?Looking forward, consensus on VEDL is stale. It shows the largest negative number for VEDL ex-HZ OP in the modern VEDL era in Q4 this year despite strong commodity pricing.And VEDL still owes a lot of back dividends to its shareholders. And we await the Open Offer details.This and a lot more below.

In mid-December, eight trading days after Vedanta promotor Anil Agarwal said the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in Vedanta Ltd (VEDL IN) and no plans to make an Open Offer, the promoter launched a block bid to buy 4.98% in a post-market trade. The shares had climbed more than 50% in the previous two months to Rs 150/share, but the deal got done at Rs 160/share.Less than three weeks later, two entities controlled by Vedanta Resources (VED LN) announced an intention to conduct an Open Offer to buy another 10% of its main Indian-listed asset, VEDL at the same Rs. 160/share price as the clearing price. But by that time (9 January), the price had risen past Rs. 180/share as global market movements had propelled gains in cyclicals and commodity markets had propelled the underlying products.But even then, VEDL was quite cheap on a relative basis. The question was about the nature of the Open Offer. Was it a real Open Offer?  Or was it designed for another purpose in mind? We still do not know the answer, but on 18 February the stock reached a new 2-year intraday high, closing at Rs. 195+/share. And VEDL is still not expensive vs peers. Q3 results at both HZ and at VEDL ex-HZ were great. VEDL ex-HZ Operating Income was the highest since March 2014, and VEDL ex-HZ Net Income in Q3 was the second highest non-accounting gimmick Net Income ever?Looking forward, consensus on VEDL is stale. It shows the largest negative number for VEDL ex-HZ OP in the modern VEDL era in Q4 this year despite strong commodity pricing.And VEDL still owes a lot of back dividends to its shareholders. And we await the Open Offer details.This and a lot more below.

Vedanta Soars Beyond Indicative Open Offer Level. Not Expensive

Event-Driven

Just over four weeks ago on 8 December 2020, <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> promoter Anil Agarwal was on <a href="https://www.moneycontrol.com/news/business/india-will-grow-phenomenally-well-hereon-says-vedantas-anil-agarwal-6208991.html" target="_blank" rel="noopener">CNBC-TV18 in India saying</a> that the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in VEDL and no plans to make an open offer. He said the same in an <a href="https://www.timesnownews.com/business-economy/companies/article/no-plans-to-increase-stake-in-vedanta-currently-anil-agarwal/693270" target="_blank" rel="noopener">interview</a> with ETNow on 10-11 December. <section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/181/867/original/Screenshot+2021-01-11+at+11.32.36+AM.png?1610336005" class="editor-image img-responsive" data-smartkarma-image-id="181867"></figure></section>Eight trading days later, they launched an off-market purchase to buy 4.98% of shares outstanding - the effective limit in any given fiscal year - to buy shares at a price between INR 150.45-160.00. This was discussed in <a href="https://www.smartkarma.com/insights/vedanta-promoter-launches-offer-to-buy-4-98" target="_blank" data-smartkarma-citation="insights:46600" rel="noopener">Vedanta Promoter Launches Offer to Buy 4.98%</a>. Early reports were they got less than 5%, and had to pay the top price to get that bit, but the 13D filed on 24 December suggests they got to 2,048,458,132 shares which is 55.1% which was what they were looking to do.
Then the shares went up some more. They immediately went above INR 160, then went higher. 
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/181/879/original/Screenshot+2021-01-11+at+1.57.17+PM.png?1610345200" class="editor-image img-responsive" data-smartkarma-image-id="181879"></figure></section></section>Less than a week after making that purchase, local media (Economic Times and others) were mentioning the possibility (from "sources") that Vedanta Resources might come back with an Open Offer for another 10%. Since the new year, the shares have popped further, likely in response to sharply higher commodity prices and a sharply higher share price for <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>, which rallied from Rs 240/share at year-end to above Rs 300/share in the first week of the year. <div class="content-highlight">
<h2>The NEW News</h2>
On 9 January 2021, <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> released an <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/B5B266CE-05B4-4E0B-9498-F913F67903B3-191702.pdf" target="_blank" rel="noopener">announcement</a> that it would launch a Voluntary Open Offer to purchase an additional 371,750,500 shares (10% of shares out) of <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> at Rs. 160/share, spending about US$800mm to get there. 
</div>A Detailed Public Statement ("DPS") will be released on or about 15 January. This starts a two-month-plus process leading to a two-week Open Offer, likely to take place starting in the second half of March. More on what this means, how it could play out, etc, below the fold.

Just over four weeks ago on 8 December 2020, Vedanta Resources (VED LN) promoter Anil Agarwal was on CNBC-TV18 in India saying that the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in VEDL and no plans to make an open offer. He said the same in an interview with ETNow on 10-11 December. Eight trading days later, they launched an off-market purchase to buy 4.98% of shares outstanding - the effective limit in any given fiscal year - to buy shares at a price between INR 150.45-160.00. This was discussed in Vedanta Promoter Launches Offer to Buy 4.98%. Early reports were they got less than 5%, and had to pay the top price to get that bit, but the 13D filed on 24 December suggests they got to 2,048,458,132 shares which is 55.1% which was what they were looking to do.
Then the shares went up some more. They immediately went above INR 160, then went higher. 
Less than a week after making that purchase, local media (Economic Times and others) were mentioning the possibility (from "sources") that Vedanta Resources might come back with an Open Offer for another 10%. Since the new year, the shares have popped further, likely in response to sharply higher commodity prices and a sharply higher share price for Hindustan Zinc (HZ IN), which rallied from Rs 240/share at year-end to above Rs 300/share in the first week of the year. 
The NEW News
On 9 January 2021, Vedanta Resources (VED LN) released an announcement that it would launch a Voluntary Open Offer to purchase an additional 371,750,500 shares (10% of shares out) of Vedanta Ltd (VEDL IN) at Rs. 160/share, spending about US$800mm to get there. 
A Detailed Public Statement ("DPS") will be released on or about 15 January. This starts a two-month-plus process leading to a two-week Open Offer, likely to take place starting in the second half of March. More on what this means, how it could play out, etc, below the fold. 

Vedanta (VEDL IN) Promoter To Launch an Open Offer To Buy More

The Vedanta promoter <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> unit Vedanta Holdings Mauritius II has announced an Accelerated Purchase of Shares of <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a>.The promoter seeks to buy in an Offer To Buy ~185 million shares or 4.98% of shares outstanding at a price between INR 150.45 - 160.00/share (a 0.0% to 6.3% premium to the BSE close of INR 150.45 today 23 December).This comes a short time after the parent raised funds at 13% to lengthen the existing debt schedule by repaying debt maturing earlier. This event is not completely unexpected.

The Vedanta promoter Vedanta Resources (VED LN) unit Vedanta Holdings Mauritius II has announced an Accelerated Purchase of Shares of Vedanta Ltd (VEDL IN).The promoter seeks to buy in an Offer To Buy ~185 million shares or 4.98% of shares outstanding at a price between INR 150.45 - 160.00/share (a 0.0% to 6.3% premium to the BSE close of INR 150.45 today 23 December).This comes a short time after the parent raised funds at 13% to lengthen the existing debt schedule by repaying debt maturing earlier. This event is not completely unexpected.  

Vedanta Promoter Launches Offer to Buy 4.98%

About eight weeks ago, immediately after the Reverse Book Build Auction for the Delisting Exit Offer for <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> failed and then about 10 days after the failure I wrote a pair of insights looking at what might happen next. In the first - <a href="https://www.smartkarma.com/insights/vedl-delisting-fail-day1-reading-between-the-lines-of-the-trading-data" target="_blank" data-smartkarma-citation="insights:44103" rel="noopener">VEDL Delisting Fail Day1 - Reading Between the Lines of the Trading Data</a> on 12 October, I pointed out six possible reactions by VEDL and VEDR (Vedanta Resources). My preferred choice was that VEDL would use the money it had raised recently to conduct an Open Offer Buyback to reduce "leakage" of the benefits of share ownership to outside parties (principally, the pass-through dividends from <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a> and the 30% payout ratio of the other non-HZ businesses which are part of the Dividend Distribution Policy), using the excuse that a large percentage of the ownership had shown that they wanted to sell at INR 135-140/share.VEDL was cheap even at the forecast depressed earnings level, and it "owed" cash to its shareholders.The stock was cheap (the close that day was INR 96.95), so it was a buy. Eight days later in <a href="https://www.smartkarma.com/insights/vedanta-limited-caught-in-economic-purgatory-but-governance-hell" target="_blank" data-smartkarma-citation="insights:44350" rel="noopener">Vedanta Limited - Caught in Economic Purgatory but Governance Hell?</a> I discussed the issue of VEDL having "fallen" in Dante's Inferno but might have walked itself back up through the maze to Purgatory economically, while its lending of funds to its parent Vedanta Resources represented ongoing governance faults.Hindustan Zinc had just announced an INR 21.3/share dividend which meant VEDL "owed" INR 25+/share to its own shareholders this fiscal year as the pass-through, and while its global peers had seen both share prices and forward multiples bounce, VEDL was at its cheapest level against peers in many, many years, with ongoing desire by the VEDR parent to fix its leakage problem.Governance was clearly a problem, but the stock was cheap, so it was a buy.Eight weeks later, as I write, the stock is at INR 142.00. Including the INR 9.5/share dividend paid, the value to shareholders from that 12 October post-RBB failure is +56%. Including the dividend, the stock is INR 10/share higher than it got in the runup to the Reverse Book Build, Then we got a dividend announcement from VEDL, H1 earnings, amended forecasts, an activist/complaining shareholder, and more news of funding issues and corporate action potential at the parent. The stock is now, as I write is INR 143.55. Including INR 9.5 dividend paid, the value to shareholders from that 12 October post-RBB failure is +57% in eight weeks. Including the previous dividend, VEDL is up single digits year-to-date. A Basket of Peers is +41% ytd. This insight discusses where we stand.

About eight weeks ago, immediately after the Reverse Book Build Auction for the Delisting Exit Offer for Vedanta Ltd (VEDL IN) failed and then about 10 days after the failure I wrote a pair of insights looking at what might happen next. In the first - VEDL Delisting Fail Day1 - Reading Between the Lines of the Trading Data on 12 October, I pointed out six possible reactions by VEDL and VEDR (Vedanta Resources). My preferred choice was that VEDL would use the money it had raised recently to conduct an Open Offer Buyback to reduce "leakage" of the benefits of share ownership to outside parties (principally, the pass-through dividends from Hindustan Zinc (HZ IN) and the 30% payout ratio of the other non-HZ businesses which are part of the Dividend Distribution Policy), using the excuse that a large percentage of the ownership had shown that they wanted to sell at INR 135-140/share.VEDL was cheap even at the forecast depressed earnings level, and it "owed" cash to its shareholders.The stock was cheap (the close that day was INR 96.95), so it was a buy. Eight days later in Vedanta Limited - Caught in Economic Purgatory but Governance Hell? I discussed the issue of VEDL having "fallen" in Dante's Inferno but might have walked itself back up through the maze to Purgatory economically, while its lending of funds to its parent Vedanta Resources represented ongoing governance faults.Hindustan Zinc had just announced an INR 21.3/share dividend which meant VEDL "owed" INR 25+/share to its own shareholders this fiscal year as the pass-through, and while its global peers had seen both share prices and forward multiples bounce, VEDL was at its cheapest level against peers in many, many years, with ongoing desire by the VEDR parent to fix its leakage problem.Governance was clearly a problem, but the stock was cheap, so it was a buy.Eight weeks later, as I write, the stock is at INR 142.00. Including the INR 9.5/share dividend paid, the value to shareholders from that 12 October post-RBB failure is +56%. Including the dividend, the stock is INR 10/share higher than it got in the runup to the Reverse Book Build, Then we got a dividend announcement from VEDL, H1 earnings, amended forecasts, an activist/complaining shareholder, and more news of funding issues and corporate action potential at the parent. The stock is now, as I write is INR 143.55. Including INR 9.5 dividend paid, the value to shareholders from that 12 October post-RBB failure is +57% in eight weeks. Including the previous dividend, VEDL is up single digits year-to-date. A Basket of Peers is +41% ytd. This insight discusses where we stand. 

Vedanta Vaulting Near 2020 Highs On Higher Commods, Higher Forecasts, But Open Offer Remote?

In Comedìa (later named La Divina Commedia), Dante Alighieri constructed a framework for understanding the faults and foibles of humans and how their souls progress after Death to their final state. The work follows Dante through 'his' discovery (with the help of guides Virgil, Beatrice, and St Bernard of Clairvaux) and realization of inherent human sinfulness, to human penitence (in Purgatorio), which eventually leads the Righteous on their path to God and Heaven (Paradiso). 
It starts, as occasionally happens in markets as well, with a descent into Hell.
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/166/382/original/Bartolomeo_Di_Fruosino_-_Inferno,_from_the_Divine_Comedy_by_Dante_%28Folio_1v%29_-_WGA01339.jpg?1603246987" class="editor-image img-responsive" data-smartkarma-image-id="166382"></figure>
<div class="content-caption">source: Dante's Inferno by Bartolomeo di Fruosino (painted 1430-1435)</div>
</section>
From the forest of Perdition through the vestibule of Indifference, one crosses the river Acheron into Limbo - the first Circle of Hell. The next 8 Circles of Hell are split into three sections. Upper Hell is for the self-indulgent - indeed Circle 3 is for the Gluttonous and Circle 4 for the Avaricious &amp; Prodigal, who spend eternity paired up with each other, rolling boulders around colliding with each other (watched over - in a "coincidence" which will be believed by no observer of Japanese M&amp;A - by Plutus). Sinners bound for worse punishment pass through the City of Dis where reside the Heretics, and on the other side one encounters the second category which is the Violent. Beyond that travellers enter Nether Hell, reserved for the Malicious and Fraudulent, with the bottom circle reserved for the Traitorous. The deeper one goes, the more grave the sin.
It could be argued that <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> had fallen, "realized" its sin in 2019 through a corporate governance discount because of Cairn India funding the Volcan investment in Anglo, and lawsuits which have caused stoppages in the copper and iron ore business. The Covid-19 crash in March took the stock to below 0.4x accounting book value per share and below 0.3x book if one marked Hindustan Zinc to market. 
Vedanta Limited (VEDL) has just ended a months-long process by which it could have been taken out by its promoters through a Delisting Offer - a possible shortcut back through Purgatorio to Paradise. However, VEDL got lost along the way, and is now firmly back in Purgatory. 
<h3>Vedanta Resources on the other hand probably never got out of the Inferno.</h3>
Some observers may believe it firmly ensconced in the 4th Circle. Creditors may put it lower down, viewing VEDR's actions as Violence against one's neighbours and oneself. Those creditors most upset might go further, putting VEDR into the 8th Circle of hell - the one reserved for Grafters, Hypocrites, Thieves, and False Counselors. Hell hath no fury like a scorned creditor (at least not until you get to the Ninth Circle). 
VEDL may be in Limbo looking up to Purgatory, but VEDR today saw Moody's place Vedanta Resources' B1 Corporate Family Rating (CFR) <a href="https://www.moodys.com/research/Moodys-places-Vedanta-Resources-ratings-under-review-for-downgrade--PR_434665" target="_blank" rel="noopener">under review for downgrade</a>.
<blockquote>
The review follows an increase in refinancing risk and significant funding needs at the holding company level, following Vedanta Resources' failure to acquire the balance shareholding in key subsidiary Vedanta Limited that would have improved access to group cash.
Moody's review will focus on the holding company's ability to refinance its upcoming debt maturities in the fiscal year ending March (fiscal 2021) and fiscal 2022. Moody's expects to conclude the review within 90 days.
</blockquote>
<h2>The NEW News</h2>
Yesterday, the board of <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>, the subsidiary of Vedanta Limited, and the biggest source of cash in the corporate chain announced the result of its Board Meeting which considered the release of its unaudited Q2 results and an "Interim Dividend", where the decision was made to pay <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/59711E9D-683B-4BA9-8F3A-3B897E334161-181347.pdf" target="_blank" rel="noopener">a dividend of INR 21.30/share</a> to shareholders as of record date 28 October 2020. 
This is a big dividend - roughly 10% of market cap - on top of what was near 10% of market cap in May - but neither were "special dividends" which means both dividends fall squarely within the purview of Vedanta Limited's official <a href="https://www.vedantalimited.com/CorporateGovernance/vedl_dividend_policy_may_15_final.pdf" target="_blank" rel="noopener">Dividend Distribution Policy</a> which states... 
<blockquote>
In every financial year, the Board aims to distribute to its equity shareholders...
1.1.  The entire dividend income (net of taxes) it receives from its subsidiary, Hindustan Zinc Ltd. (this does not apply to any one‐time special dividends received from Hindustan Zinc Ltd. which will be at the discretion of the Board); and
1.2.  a Minimum 30% (including taxes, cess, and levies, if any relating to the dividend) of Attributable Profit after Tax (before exceptional items) of the Company excluding its share of profits in Hindustan Zinc Ltd for the year. Such profits will be net of dividend payout to preference shareholders, if any.
</blockquote>
In May this year HZL paid INR 16.5/share and now this will be INR 21.3/share. That is a total of INR 37.8/share or INR 34.02/share after tax. VEDL owns 2,743,154,310 shares of HZL which ends up being INR 93.322 billion.
Based on the number of VEDL shares outstanding as of the end of September, that is INR 25.106/share owed to every shareholder of Vedanta just from the HZL dividends plus the amount from VEDL. <a href="https://economictimes.indiatimes.com/markets/stocks/news/vedanta-to-receive-rs-5843-crore-as-dividend-from-hindustan-zinc/articleshow/78770756.cms?utm_source=contentofinterest&amp;utm_medium=text&amp;utm_campaign=cppst" target="_blank" rel="noopener"></a>
Of course, that doesn't solve the problem. 
In the past months I rarely, if ever, get questions about court cases, commodity market fundamentals, average selling prices, production estimates, environmental issues being resolved, etc. The questions I get asked are two-fold. 
<ol>
<li>Does VEDL have good enough governance to follow the Board's stated dividend distribution policy?</li>
<li>Will VEDL instead lend those funds to its parent in contravention of good governance and appropriate stewardship of VEDL financial assets? </li>
</ol>
My answers remain: 
<ol>
<li>I do not know, but the board should follow its stated policies. </li>
<li>I do not know, but the board should receive independent advice about doing so and if it chooses to lend money to its own parent company in contravention of the spirit of the rules against related party transactions, it should set rates and terms and conditions on an arms length basis as determined by a third party. Certainly, if there is money to be invested, lending it to VEDR cannot be the single best investment target from both a return and risk perspective for VEDL shareholders in the whole universe. </li>
</ol>
The fact that a body of independent directors with serious backgrounds should have some weight and should be able to make appropriately independent decisions on behalf of VEDL shareholders is usually met with a hearty guffaw. 
Independent board members of Vedanta Limited should take note. Minority investors do not trust your independence unless you act like independent directors. Expectations will build. The dividend owed is 25% of the current share price. 
More, of course, below the fold.

In Comedìa (later named La Divina Commedia), Dante Alighieri constructed a framework for understanding the faults and foibles of humans and how their souls progress after Death to their final state. The work follows Dante through 'his' discovery (with the help of guides Virgil, Beatrice, and St Bernard of Clairvaux) and realization of inherent human sinfulness, to human penitence (in Purgatorio), which eventually leads the Righteous on their path to God and Heaven (Paradiso). 
It starts, as occasionally happens in markets as well, with a descent into Hell.


source: Dante's Inferno by Bartolomeo di Fruosino (painted 1430-1435)

From the forest of Perdition through the vestibule of Indifference, one crosses the river Acheron into Limbo - the first Circle of Hell. The next 8 Circles of Hell are split into three sections. Upper Hell is for the self-indulgent - indeed Circle 3 is for the Gluttonous and Circle 4 for the Avaricious &amp; Prodigal, who spend eternity paired up with each other, rolling boulders around colliding with each other (watched over - in a "coincidence" which will be believed by no observer of Japanese M&amp;A - by Plutus). Sinners bound for worse punishment pass through the City of Dis where reside the Heretics, and on the other side one encounters the second category which is the Violent. Beyond that travellers enter Nether Hell, reserved for the Malicious and Fraudulent, with the bottom circle reserved for the Traitorous. The deeper one goes, the more grave the sin.
It could be argued that Vedanta Ltd (VEDL IN) had fallen, "realized" its sin in 2019 through a corporate governance discount because of Cairn India funding the Volcan investment in Anglo, and lawsuits which have caused stoppages in the copper and iron ore business. The Covid-19 crash in March took the stock to below 0.4x accounting book value per share and below 0.3x book if one marked Hindustan Zinc to market. 
Vedanta Limited (VEDL) has just ended a months-long process by which it could have been taken out by its promoters through a Delisting Offer - a possible shortcut back through Purgatorio to Paradise. However, VEDL got lost along the way, and is now firmly back in Purgatory. 
Vedanta Resources on the other hand probably never got out of the Inferno.
Some observers may believe it firmly ensconced in the 4th Circle. Creditors may put it lower down, viewing VEDR's actions as Violence against one's neighbours and oneself. Those creditors most upset might go further, putting VEDR into the 8th Circle of hell - the one reserved for Grafters, Hypocrites, Thieves, and False Counselors. Hell hath no fury like a scorned creditor (at least not until you get to the Ninth Circle). 
VEDL may be in Limbo looking up to Purgatory, but VEDR today saw Moody's place Vedanta Resources' B1 Corporate Family Rating (CFR) under review for downgrade.

The review follows an increase in refinancing risk and significant funding needs at the holding company level, following Vedanta Resources' failure to acquire the balance shareholding in key subsidiary Vedanta Limited that would have improved access to group cash.
Moody's review will focus on the holding company's ability to refinance its upcoming debt maturities in the fiscal year ending March (fiscal 2021) and fiscal 2022. Moody's expects to conclude the review within 90 days.

The NEW News
Yesterday, the board of Hindustan Zinc (HZ IN), the subsidiary of Vedanta Limited, and the biggest source of cash in the corporate chain announced the result of its Board Meeting which considered the release of its unaudited Q2 results and an "Interim Dividend", where the decision was made to pay a dividend of INR 21.30/share to shareholders as of record date 28 October 2020. 
This is a big dividend - roughly 10% of market cap - on top of what was near 10% of market cap in May - but neither were "special dividends" which means both dividends fall squarely within the purview of Vedanta Limited's official Dividend Distribution Policy which states... 

In every financial year, the Board aims to distribute to its equity shareholders...
1.1.  The entire dividend income (net of taxes) it receives from its subsidiary, Hindustan Zinc Ltd. (this does not apply to any one‐time special dividends received from Hindustan Zinc Ltd. which will be at the discretion of the Board); and
1.2.  a Minimum 30% (including taxes, cess, and levies, if any relating to the dividend) of Attributable Profit after Tax (before exceptional items) of the Company excluding its share of profits in Hindustan Zinc Ltd for the year. Such profits will be net of dividend payout to preference shareholders, if any.

In May this year HZL paid INR 16.5/share and now this will be INR 21.3/share. That is a total of INR 37.8/share or INR 34.02/share after tax. VEDL owns 2,743,154,310 shares of HZL which ends up being INR 93.322 billion.
Based on the number of VEDL shares outstanding as of the end of September, that is INR 25.106/share owed to every shareholder of Vedanta just from the HZL dividends plus the amount from VEDL. 
Of course, that doesn't solve the problem. 
In the past months I rarely, if ever, get questions about court cases, commodity market fundamentals, average selling prices, production estimates, environmental issues being resolved, etc. The questions I get asked are two-fold. 

Does VEDL have good enough governance to follow the Board's stated dividend distribution policy?
Will VEDL instead lend those funds to its parent in contravention of good governance and appropriate stewardship of VEDL financial assets? 

My answers remain: 

I do not know, but the board should follow its stated policies. 
I do not know, but the board should receive independent advice about doing so and if it chooses to lend money to its own parent company in contravention of the spirit of the rules against related party transactions, it should set rates and terms and conditions on an arms length basis as determined by a third party. Certainly, if there is money to be invested, lending it to VEDR cannot be the single best investment target from both a return and risk perspective for VEDL shareholders in the whole universe. 

The fact that a body of independent directors with serious backgrounds should have some weight and should be able to make appropriately independent decisions on behalf of VEDL shareholders is usually met with a hearty guffaw. 
Independent board members of Vedanta Limited should take note. Minority investors do not trust your independence unless you act like independent directors. Expectations will build. The dividend owed is 25% of the current share price. 
More, of course, below the fold. 

Vedanta Limited - Caught in Economic Purgatory but Governance Hell?

India

Hindustan Zinc Limited specializes in the exploration, mining and smelting of zinc, lead and other non-ferrous metals.  The Company's products include zinc ore, lead zinc concentrate, zinc metal, lead metal, cadmium metal, silver metal and sulfuric acid.

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Hindustan Zinc (HZ IN)

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