Vedanta: JPMorgan responds to concerns over VRL’s governance

JPMorgan on Thursday issued a new note on Vedanta Resources (VRL), the parent company of Vedanta Ltd, responding to key concerns raised in Viceroy Research's critical report on the Anil Agarwal-led group. The global brokerage said it remains comfortable with Vedanta’s leverage position and highlighted the Indian government’s oversight of Hindustan Zinc as a positive factor.

India-listed Vedanta called the short-seller's report a malicious combination of selective misinformation and baseless allegations to discredit the group. Here's what JPMorgan said on the Viceroy Research's allegations:

Net leverage: JPMorgan’s analysis focuses on Vedanta Ltd’s (VDL) cash flows and earnings excluding Hindustan Zinc Ltd (HZL) to better understand the core credit drivers. On this basis, Vedanta (ex-HZL) reported Ebitda of approximately Rs 25,800 crore in FY25, with a net leverage ratio of 2.2x. These numbers suggest no apparent financial stress at Vedanta. In comparison, Hindustan reported a net leverage of just 0.1x. 

However, with planned capital expenditure, JPMorgan expects HZL’s net leverage to rise to 0.5x. 

HZL & government oversight: JPMorgan noted that the Government of India (GoI) has retained three board seats at HZL since its strategic disinvestment in the early 2000s. Historically, the government-nominated directors have intervened to block transactions they considered misaligned with the interests of HZL or its stakeholders. JPMorgan cites past instances and believes the GoI continues to exert oversight, particularly over major decisions like capex plans.

Tax claims under litigation: HZL has disclosed tax and regulatory claims of approximately Rs 15,150 crore, which are currently under litigation and not recognised as liabilities on the company’s balance sheet. This practice is common across regulated sectors like mining. JPMorgan notes that JSW Steel, too, has disclosed similar claims worth around Rs 15,000 crore under litigation, which are not reflected as liabilities.

Put/Call option linked to HZL stake: JPMorgan notes that historical disclosures mention a put/call option arrangement between the GoI and Vedanta concerning the GoI’s stake in HZL. The terms allowed either party to require the other to buy/sell shares at a 50 per cent premium or discount to the prevailing market price. These options were conditional on the completion of a smelter plant by 2007. Although the plant was eventually constructed at an alternate site after informing the GoI, JPMorgan finds it unlikely that any contractual breach would have gone unnoticed by the government over the last two decades.

JPMorgan stays Overweight on VRL bonds: JPMorgan maintains an 'Overweight; rating on Vedanta Resources Ltd, seeing it as undervalued within Asia and the broader emerging markets (EM) metals and mining space. The firm highlights a stable Ebitda run-rate of $5billion, improved access to funding (with $1 billion in bank loans raised by VRL in FY26), and attractive yields in the 8–10 per cent range.

JPMorgan prefers the VEDLN 2029 bonds (10% yield-to-worst, offer price: 102.3) and the 2031s (10.2% YTW, offer: 103.4), while remaining Neutral on the 2033s (10% YTW, offer: 99.14).