The decision by Vedanta to divide itself into various listed companies has again created a huddle hitch this time with the central government giving some stiff opposition on a recent hearing session in the National Company Law Tribunal (NCLT). This almost instantly hit the market: Vedanta shares(Vedanta Share Price) fell almost 4 percent intraday before being regained slightly later in the day. Vedanta is powering on with a plan that could transform its business, which is being monitored with interest by investors as Vedanta attempts to be reassured of its actions to regulators and other interested parties.
What Is the Demerger Plan?
In brief, this is a quick recap: Vedanta under the leadership of Anil Agarwal has offered to divide its operations in India into a number of companies which are distinctly listed. This is aimed at unlocking value, enhancing focus in single business lines, and providing more targeted exposure to investors.
The envisaged units include some of them:
- Malco Energy (oil and gas)
- Vedanta Aluminium
- Vedanta Power
- Vedanta Iron & Steel Reorganize the
- Vedanta Ltd so as to own zinc and silver through Hindustan Zinc, and provide an incubator to newer projects.
It is not a new concept: sections of the demerger already have been pending and discussed over several months. As matters turn out, there were certain procedural hurdles (like the worries about non-disclosures and contractor (Sepco) objections) that had postponed things in the meantime.
What Government Is Raising as Concerns
The government raised a number of concerns during the hearing by NCLT on September 17, 2025. These may be generally categorized as financial, regulatory and governance/disclosure risks. Here are the major ones:
1. Post-Demerger Financial Risk / Stability
The government states that the demerged organization (particularly Malco Energy) would find itself with diminished asset coverage even to the negative net worth area, which would render it difficult to collect government dues. In March 2024, Malco is reported to have a net worth of -[?]29,000 crore and an estimated assets value of approximately that.
2. Hidden Liabilities or Under-stated Liabilities
The government indicated that not all liabilities (such as the arbitration claim of [?]5,900+ crore) were disclosed in an appropriate manner. It is feared that there are certain contingent obligations or debt exposures that are underrepresented.
3. Accrual misrepresentation of Hydrocarbon / Oil & Gas Assets
The approved hydrocarbon blocks are being treated as fully usable assets, although the regulatory approvals of loans or finances in respect of the same might not be in place. That is, the government is citing that certain assets are being overplayed.
4. Breaking of SEBI / Disclosure Norms
Government claims that some of the disclosures that SEBI demanded have been inadequate or erroneous. This incorporates (based on previous proceedings) non-disclosure of the claim of SEPCO (Rs1,251 crore) made by Vedanta / its subsidiary Talwandi Sabo Power Ltd, which was deemed to be material in previous NCLT decisions.
5. Liquidation Risk of Malco Energy
The greatest fear perhaps: that on becoming demerged, Malco Energy may no longer be financially viable, may be pushed into liquidation, and the government may be unable to recover what is owed.
Response and What Still Left Open Vedanta
Vedanta isn’t sitting silent. Some of its pushbacks and moves to quell fears in this regard are:
- It asserts that the demerger scheme has been passed by all the creditors and stakeholders.
- Vedanta is providing corporate guarantees so that the dues of the government are secured.
- The company claims that the law does not mandate any further disclosures since the necessary ones have been given. It further insists that the government has not dismissed the plan of demerger as such.
Nonetheless, it has a number of open items:
- The last hearing will be held on October 8, 2025 in NCLT. That will be critical.
- Earlier, some disputes (e.g. with SEPCO) have resulted in non-disclosure being rejected by NCLT. The past leaves a precedent that NCLT takes disclosure duties seriously even though some of them were resolved through settlement.
- The essence of regulators concern appears to bring trust and transparency in the account of assets and liabilities (particularly in oil and gas blocks). A lot to kill or cure investor confidence.
How the Market Reacted Vedanta Share Price
The response was swift:
- There was a decline in the shares almost by 4 per cent. intra-day, with the low at Rs443.90. Then mid-afternoon, recovered somewhat to Rs454 (down (-1.5)%).
- Performance in the long-term: small improvements in 2025 (only ~2%), but a good performance in 2 years (improvement of up to 92%). During the last year, however, the stock has hardly been moving (~1% gain). These movements indicate the switching of sentiment to regulatory changes.
Why It Matters: Stakes and Implications
The implications of all this on a broader basis are:
1. Value Unlocking/Regulatory Oversight
The demerger is set to realise concealed or under-realised value in diversified businesses of Vedanta. However, it is not just a case of dividing the balance sheets when it comes to splitting up a giant conglomerate and regulators (government, tribunals, SEBI) are hung over what dues are due, what liabilities are shrouded and how assets are being valued. The neglect of those may sabotage even the most good-natured restructuring.
2. Stakeholders, Trust, and Creditors
The example of SEPCO demonstrates that the influence of the disagreement of the partners in the contract, creditors, or intermediaries can be disproportionate. A single undisclosed or unpaid debt or claim can compel a tribunal to turn down the scheme. Funding, legal clarity and investor sentiment are other issues that stakeholder trust is important.
3. Legal Precedents
The Companies Act (Sections 230-232), the requirements of disclosure, the fairness of the procedure are all brought to the microscope. Previous tribunal ruling (and appeals) are also important. When Vedanta is perceived to be breaking norms, even without intent to do so, that will put the scheme on hold or alter it dramatically.
4. The Revenue and recoverability concerns in government
As the government has dues, which may be in the form of oil and gas royalties, taxes or participations, recovery of the dues may be influenced where the demerged parties are financially weak. That is something that causes the government to be particularly alert. Red flags are liquidation risk, negative net worth in certain resultant companies, or excessive debt exposure.
5. Investor Sentiment and Market Volatility
Even with the rebound, albeit not fully, of the sharp decline in the share price, the sensitivity of the markets to regulatory risk is indicative of the sensitivity of markets to regulatory risk. Particularly in the case of a large stock such as Vedanta, which belongs to the metals, mining, energy – industries that are interest, regulation and commodity price sensitive.
Looking Ahead:
As an investor or watcher of this policy, the following milestones and signs will be of interest:
- October 8, 2025 NCLT Hearing The final hearing is key. Possibility to overcome the objections that have been made, whether changes or elucidations are needed, etc.
- Additional revelations of Vedanta. Especially on liabilities, hydrocarbon asset valuation, negative net worth problems, and government guarantees.
- SEBI’s role How much farther SEBI objects or requests to change disclosure or indicate the existence of non-compliance will be instructive.
- Government’s posture Will it receive corporate guarantees? Will it demand more regulatory guardrails? To what extent will it give impetus to the full protection of government dues?
- Malco Energy / other demerged entities financial measures. Their assets, liabilities, net worths, capacity of servicing debt etc. will be examined.
My Take
The demerger proposal by Vedanta has a significant potential: the business line-separation can lead to the business focus, which may draw investors interested in sector-specific returns, which may result in an increase in valuations. However re-organization of such magnitude is associated with regulatory, financial and perception risk. These objections of the government do not pass over the head of reasons, they are the very essence of whether the demerger would be fair, transparent and financially sound.
Provided that Vedanta can effectively respond to all the issues, including complete disclosure, clear guarantees, and sound valuation, this will yet be a success. However, when such problems are uncertain or disputed, then investor reluctance appears reasonable. It is a very thin line between unlocking hidden value and putting red flags on the desk of stakeholders and regulators.
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