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The Hindu
2 days ago
- Business
- The Hindu
What was the premise of Viceroy Research's short of Vedanta?
The story so far: India miner Vedanta Ltd.'s (VEDL) stock slumped nearly 8% on Wednesday (July 9, 2025) after Delaware-based Viceroy Research took a short on its UK-based parent Vedanta Resources (VRL)'s debt stack. In other words, wagering that the parent would default in repaying their debt. It held the holding company to be a 'parasite' with 'no significant operations of its own' feeding on cash 'extracted' from 'host' VEDL. The short seller articulated the entire structure as 'financially unsustainable, operationally compromised' accounting for a 'severe, under-appreciated risk to creditors'. Notwithstanding the fall Wednesday, the scrip shrugging off the decline closed 0.83% higher at ₹442.60. Vedanta – Limited Resources Viceroy is short of Vedanta Resources (PropCo), the heavily indebted parent & majority owner of Vedanta Limited (NSE : VEDL). The group structure is financially unsustainable, operationally compromised, & resembles a Ponzi scheme. $VEDL 1/ — Viceroy (@viceroyresearch) July 9, 2025 What is short selling? Broadly, short-selling entails profiting from a fall in the prices of a scrip. Although it can serve many purposes, such as mitigating demand-supply imbalances in scrips and ensuring better price efficiency, among other things, it can also be potentially utilised to manipulate and drive down the prices of a scrip. Thus, prompting concerns about their intent and credibility. As a practice, it entails selling a borrowed scrip in anticipation of a downward price movement and buying it back when the lower price level is realised. Let us say, anticipating a downward movement, an individual borrows and thereafter sells 10 shares at ₹100 apiece. The total sale value is ₹1,000. The price of the share decreases to ₹85 apiece and they opt to buy the quantity back. This time it will cost them ₹850 — a direct profit of ₹150. The short seller at the centre of the current story, that is, Viceroy Research's recent shorts on U.S.-based Medical Properties Trust and Arbor Realty Trust are important to note. Bloomberg reported July last year that federal prosecutors in the U.S. were looking into the latter company's lending practices and disclosures. Details of the reported investigation have not been made public yet. Medical Properties Trust, on the other hand, mutually decided to 'settle and dismiss' a defamation lawsuit it filed against the Delaware short seller in October 2023. The terms have been kept confidential. Underlining their next move following their latest short position (against VRL), co-founder Fraser Perring told news publication NDTV Profit that it was in the process of making their submissions to SEBI referencing specific violations of law. Why is Viceroy Research calling Vedanta Resources a 'parasite'? The subject of the entire contestation is Viceroy Research's allegations that the holding company is 'systematically draining' VEDL to service its own debt load. The Delaware short seller holds the India-based unit is being forced to acquire more debt on a recurrent basis which is depleting its own cash position. The fresh capital is being raised in the guise of operational requirements entailing capital-intensive projects that it 'cannot afford'. The report adds that the alleged 'looting' erodes the fundamental value for VRL's own creditors for whom the equity stake in the Indian unit is the primary collateral. Thus, if the entity's value falls, it could potentially reverberate consequences for the parent company's ability to service debt as well. The other set of allegations hold that Vedanta Ltd.'s interest expenses, or cost of borrowing funds, vastly exceed those determined as per their reported interest rates. This continued to scale upwards notwithstanding paydowns and restructuring. For perspective, the short seller observed that the parent company's effective interest rate more than doubled from 6.4% (2021) to 15.8% in 2025 despite having trimmed their gross debt by $3.6 billion since FY 2021. Viceroy lends three potential explanations to the reported paradigm. Firstly, it apprehends that additional expenses potentially relate to an undisclosed, off-balance sheet debts (that is, a debt not enumerated in a company's balance sheets) or a similar financial obligation, enumerated as expenses in the balance sheet. The other apprehension holds that intra-period loans entailing higher costs of borrowing are being used and repaid before reporting dates to mask the level of debt. And finally, the loan rates and/or conditions have been materially misreported. What else do we know? The other set of apprehensions relate to the structure for dividend payment and 'brand fee'. Both the paradigms, as inferred from the report, revolve around an understanding that Vedanta Resources does not have any significant operations of their own and no operating cash flow. Viceroy Research alleges the parent company's debt obligations, both principal and interest, are funded through dividends and brand fees from its Indian unit. The short seller deems the framework for extracting dividends off VEDL to be 'highly inefficient'. This is because Vedanta Resources hold only 56.38% equity stake in VEDL and about 61.6% stake in Hindustan Zinc. The latter is a subsidiary of Vedanta Ltd. Thus, the Delaware short seller explains Vedanta Resources 'forces' its Indian unit to 'declare disproportionally large dividends'. This is to potentially ensure the parent can receive the sought money notwithstanding limited ownership. Viceroy Research adds, the dividends are not funded by free cash flow but by acquiring further debt and draining the balance sheet. The other aspect relates to brand fees, or a licensing fee permitting the payee to use the brand name. Viceroy Research observed coming in as 'rolling, prepaid advances', the fees provided Vedanta Resources with upfront liquidity. 'These transactions lack commercial justification and are designed to bypass dividend leakage to minority shareholders, including the Govt of India,' it argued. The short seller elaborated VRL received $338 million in brand fees from Vedanta Ltd and its subsidiaries in FY 2024. This represented 37% of its net profit during the period. However, according to the short seller, none of the paying companies (that is, Vedanta Ltd and subsidiaries) made 'meaningful use' of the Vedanta brand other than VEDL. How has the company responded? Vedanta Ltd held Viceroy Research's report to be a 'malicious combination of selective information and baseless allegations' to discredit the group. The company argued the short seller's report sought to 'sensationalise the context' for the information that was already public. Additionally, the company deemed the timing of the report to be susceptible and potentially aspiring to 'undermine' their corporate initiatives. The latter, among other things, was also referring to their proposed demerger. Vedanta Ltd intends to retain their base metals business and separate their subsidiaries, namely Vedanta Aluminium Metal Ltd., Talwandi Sabo Power Ltd. (TSPL), Malco Energy Ltd. and Vedanta Iron and Steel Ltd. into standalone entities. The idea was to 'unlock value and attract big ticket investment' for their growth. Viceroy Research however assess the proposed demerger would spread the group's insolvency across multiple, weaker entities; thus, burdening them with a 'legacy of impaired assets and unserviceable debt'. What to make of the entire scenario? Investment analysts and brokerages have refrained from raising an alarm. J.P. Morgan in their report July 10 observed Vedanta Ltd reported EBITDA of $3.1 billion in FY 2025 and a net leverage (that is, the ability to borrow) of 2.2 times. 'We struggle to see financial stress at VDL with these metrics,' it stated. Furthermore, ICICI Direct Research also held the allegations to have far lesser implications on the company's operations and earnings prospects in future. The brokerage research held the company commissioning new capacities across its divisions would help cash flow from operations scaling beyond ₹35,000 crore. 'With this, it aims to trim the group's Net Debt to EBITDA from about 2-times (of EBITDA) in FY 2025 to near 1-time going ahead,' it stated. However, the brokerage warned about any potential change or delay in meeting the parent's debt maturity obligations. 'Any adverse capital allocation decision at the parent company could potentially impact growth capex, balance sheet & dividend payouts at the company level,' the note read. What are the latest developments from Thursday? The short seller countered the company's rebuttal alleging VEDL failed to respond to any of their concerns. Among other things, the short seller sought the rationale for paying dividends when their cumulative cash flows receded to a deficit in the past three years and how it sought to raise debt despite the unsustainable dividend. For perspective, the short seller had alleged VEDL of housing a $5.6 billion free cash flow shortfall against dividend payments of $8 billion over the last three years. It also called upon the board to justify their investments in newer ventures as semiconductors, nuclear and glass, when existing projects remained allegedly 'incomplete and underfunded'. Finally, the short seller also sought to ask if the demerged entities would be subject to cross guarantees with other subsidiaries as Vedanta Ltd and Vedanta Resources – similar to the model alleged in their latest short. Significantly, the short seller published their report days ahead of the company's annual general meeting of shareholders. Deshni Naidoo, CEO at the parent company Vedanta Resources held at the Thursday AGM that short seller report 'compiled only part information filled with gross inaccuracies'. Enumerating Vedanta's growth strategy, she stated, 'We have created a robust business model, and, on the parent-level, our debt has been reduced by $4 billion in the last three years.' Furthermore, she underlined that VEDL would allocate ₹50,000 crore as capital expenditure over the next 3-4 years with each of the projects targeting an 18% internal rate of return.
Mint
5 days ago
- Business
- Mint
Vedanta has so many red flags, it will take people some time to digest: Viceroy's Perring
Fraser Perring, a British short-seller and founder of Viceroy Research, caused a stir in the markets with a critical report on Anil Agarwal's Vedanta Resources Ltd. The report, published during market hours, saw Vedanta shares tumble before they partially recouped their losses to end 3.38% lower than the previous day's close. In a telephonic interview from the UK with Mint's Varun Sood and Nehal Chaliawala, Perring said there is 'more to come", adding that 'there are so many red flags" that 'it will take people some time to digest this". Vedanta has denied the allegations. Also read | Vedanta under fire: Allegations of financial misconduct ring alarm ahead of AGM Perring and Viceroy Research have earned a reputation for being taken seriously in the financial world, largely due to their role in exposing Wirecard, the German payment processor and financial services provider that was embroiled in one of the biggest financial scandals in post-war Germany. Edited Excerpts: We've taken a short position personally here (Vedanta Resources Ltd or VRL). We opened short positions on the bonds of VRL about three to four months back. I can't remember exactly. We never disclose the size of our short, but it's a high-conviction short. It's through prime brokers. I don't know where the counterparty is. Not necessarily, we share the reports, but when we have a high-conviction idea that we may or may not publish, and we take a position that we've been short here on the bonds. Three key co-founders are generally idea-driven, and then we contract in or work with people who have a better skill set in certain areas, because it would be misleading to say that we all know everything. We conduct extensive on-the-ground research, examining what Vedanta has said over the last few months. So, timing-wise, the conception or thought process behind Vedanta was about nine months, give or take, from memory. It was September or October of last year. Yeah. What drew our attention was that key events were reported in local newspapers. Also read | Vedanta share price tanks 8%. Is Viceroy Research report behind the fall? Still, the company didn't acknowledge this, as evidenced by court cases or by increasing the value of assets, even though they were either not operational or poorly performing. It prompted us to examine some of the assertions Vedanta had made about its projects and its commitment to them. We found that many of Vedanta's promises were never actually fulfilled, such as its announcements about entering the semiconductor and nuclear industries. All of this never materialised. All it's doing is refinancing debt or enabling the payment of dividends. It's crazy. Well, for Vedanta itself, it's to raise cash, promote the share price and enrich the majority shareholders at the expense of the minority shareholders. The question really should be, how is it allowed to go on where real investors are having their investment jeopardised by a financial management system that's going to, if they continue in this way, jeopardise all the shareholders. In double-digits. Maybe 15 or 20 people. We focus on people with skill sets to almost try and disprove our thesis, because from a research perspective, it's better to try and prove yourself wrong as a short seller, because your piece will be more solid. But you are also testing the facts more, rather than assuming you're right. Also read | Vedanta expects demerger to complete by Sept-end: CFO No journalists. Predominantly forensic accountants, people in the commodities or infrastructure sector, things like that, getting their views … testing out whether what we believe is happening is correct or whether we are wrong. We wouldn't expect a strong initial reaction. In reality, it will take people some time to digest this. There are so many red flags in this report that I don't think it'd be appreciated until people get to the bottom of it, if I may. It's a combination of all three, as you'll see in our follow-up, depending on how transparent Vedanta wants to be. Obviously, we don't give everything at once. There's more to come. We will be sharing some anecdotes, but we don't want to spoil this surprise. We've spent a considerable amount of time on this report, making it one of the few we intend to produce, which offers in-depth coverage of the company, requiring transparency. Obviously, the company needs to be allowed to respond fully, rather than with a childish response. And if that changes, then we will publish more details. There will be a series of reports. I am yet to find where the last regulator made things challenging. It happened during the Wirecard episode in Germany, with which we were also heavily involved. There are enough short sellers out there and where they still do damn good work, and our experience of regulators, particularly over the two and a half years, has been, if I'm being really honest, quite positive … we have assisted with investigations into fraudulent companies on three continents. Yes, they don't appreciate the work that we do to the level they should, but they have also been very respectful. They have quite clearly embraced reports, and you can see that out of the charges that were brought by the work. According to the statement today, all the information that we published is known. That's poppycock. That's what companies rely on as a defence, because they don't want to have to explain how bad it is. We have seen that, all over the world, there is a complete denial. It's malicious. That we profit from being short. Also read | Anil Agarwal on success: 'It begins in quite years, no praise, just work…' But in reality, they've been profiting for years, completely underrepresenting risks and misstating the performance of assets, appreciating the value of assets, falsely capitalising projects, and that's even down to amortising a large fine, which is in complete contradiction to accounting rules. There are no coercive or malicious events surrounding the time of our report. It's just that it was ready when it was, and the company, irrespective of our timing. So let's ignore the timing. There's nothing to see there. Why don't they respond fully point by point? Ultimately, the end goal is for minority shareholders to protect themselves. The stakeholders, other than those implementing this strategy, have been misled and should be in uproar. Because, if this continues, the parasite, as we refer to it, is just a financial extraction. If we believe that we wouldn't do it. One thing we do is highlight transparency. We published on Wirecard. It's about transparency, which is lacking in the public markets, where companies are too willing to highlight the positives and overlook what's happening, not necessarily behind the scenes, but the things that could impact them. And accountability is key, but more importantly, we're advocating for greater transparency from companies, particularly those that perpetually spin plates of prosperity versus the reality of their underlying performance. Also read | Vedanta's Anil Agarwal sees BIG opportunity for India amid Harvard-Trump row In the case of Nate (Nathan Anderson, founder of Hindenburg), he attempted to bring transparency to shareholders (at Adani). I'm sure that the corporate governance is either better managed at Adani now, or at least people believe it is. Suppose it has improved, kudos. The reality is also that the conviction in Adani Enterprises is 30% less than when Hindenburg published the report. It depends on what investors want to believe. We've held on to some shorts for two years. We'd welcome an invitation if you'd like that as your headline. We'd dial in. Yeah. We are more than willing to have anyone with an invite ask questions.
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Business Standard
5 days ago
- Business
- Business Standard
Vedanta shares fall 3.38% after Viceroy alleges group-wide misconduct
Anil Agarwal-owned firm denies Viceroy Research's allegations of a Ponzi-like structure, calling them a malicious attempt to discredit the group and derail future plans Mumbai Shares of Vedanta Ltd, the Indian metals-to-mining giant, fell 3.38 per cent on the stock exchanges on Wednesday after the US-based short-seller Viceroy Research released a scathing report accusing its London-based parent, Vedanta Resources, of orchestrating a 'Ponzi-like' structure and alleging group-wide financial misconduct, accounting fraud, and looming insolvency risks. In a detailed 87-page forensic report, Viceroy — which disclosed a short position in Anil Agarwal-owned Vedanta Resources' debt — described the group as a "financial zombie" reliant on extracting unsustainable cash flows from Vedanta Ltd to service mounting debt at the parent level. The report alleges that Vedanta Ltd's own balance sheet is being hollowed out through massive leverage, accounting trickery, and cash transfers masked as brand fees and inter-company loans. Apart from Vedanta, shares of Vedanta Ltd's subsidiary Hindustan Zinc also fell by 2.56 per cent to Rs 425 a share (see chart). The spokesperson said the timing of the report is suspect and could be intended to undermine forthcoming corporate initiatives. 'Our stakeholders are discerning enough to understand such tactics. In fact, to avoid any responsibility, the authors of the report have included disclaimers stating the report is for educational purposes and merely expresses opinions, not facts,' the spokesperson said, adding that the group remains focused on business and growth. The Viceroy Research report, reminiscent of a similar attack on the Adani group by now-defunct Hindenburg Research in 2023, says the core of its investment thesis rests on a simple but critical dynamic: Vedanta Resources Ltd (VRL) is a "parasite" holding company with no significant operations of its own, propped up entirely by cash extracted from its dying "host": Vedanta Ltd. To service its own debt burden, VRL is systematically draining the Indian listed entity, forcing the operating company to take on ever-increasing leverage and deplete its cash reserves. 'This looting erodes the fundamental value of Vedanta Ltd, which constitutes the primary collateral for VRL's own creditors,' the report said. 'Consequently, VRL's actions to meet its short-term obligations directly impair its creditors' long-term ability to recover their principal, a situation that resembles a Ponzi scheme where Vedanta Ltd stakeholders, which include VRL creditors, are the 'suckers',' the report said. Viceroy Research was founded by Fraser Perring, who was an early critic of the fraudulent German payments company Wirecard AG. The firm has previously targeted large companies such as industrial software group Hexagon AB. Notably, Viceroy was fined by South Africa's regulator in 2021. The report said this arrangement has pushed the entire group to the brink of insolvency, propped up only by a continuous cycle of new debt, accounting tricks, and the deferral of massive, undisclosed liabilities. 'New credit lines serve only to destroy the PropCo's only collateral, staving off immediate insolvency at the expense of any chance of creditors recovering principal. The mechanisms used to maintain the illusion of stability are failing, and a group-wide insolvency event is no longer a distant risk,' it said, adding that the group's proposed demerger plan will spread liabilities across weaker entities, exacerbating financial fragility rather than resolving it.
