Limited Strategic Synergy in Vedanta's JAL Acquisition; Deal Rated Redit Negative: CreditSights

Mining conglomerate Vedanta Ltd's proposed acquisition of distressed infrastructure builder Jaiprakash Associates Ltd (JAL) for ₹17,000 crore is credit negative because of limited strategic synergistic rationale, CreditSights said Wednesday.

Vedanta has emerged as the highest bidder to acquire JAL under corporate insolvency resolution route (IBC). Of the ₹17,000 crore bid price, Vedanta has proposed to pay ₹3,800 crore upfront, with ₹2,500-3,000 crore to be paid annually over the following five years.

"We view the acquisition as credit negative for VEDL and (its parent) Vedanta Resources Ltd considering JAL's heavy debt stack, deteriorating earnings, and little strategic synergistic rationale (in our view), " CreditSights, a Fitch Group firm, said in a note.

The acquisition, it said, "exposes VEDL to the real estate, cement, and infrastructure segments, which tend to be more cyclical, volatile and working capital intensive." The new verticals are very different from Vedanta's existing metals and mining units, and have dissimilar business drivers, it said adding the company also has a limited operational track record and experience in the newly entered segments, posing execution risks and stiff challenges in running day-to-day operations amid a lack of meaningful synergies with its metals and mining verticals.

"We are watchful of new venture execution risks too," it said, adding the acquisition also suggests Vedanta Resources Ltd's (VRL) increasingly aggressive capex and expansion appetite, which has been regularly highlighted as a key risk for Vedanta.

"We view the development as a credit negative if Vedanta's bid is successful. We have noticed indications of aggressive expansionary appetite. We will closely monitor the progress on the acquisition, but keep our recommendation unchanged for now as lenders nod and a few approvals are still pending that induce uncertainty over a successful deal," it added.

JAL has a presence in power, cement, real estate, and fertilizers businesses.

Separately, S&P Global Ratings said the diversification into unrelated business segments will expose Vedanta to additional risks and may weaken its business position.

"This is because most of JAL's businesses operate at a loss and may require significant investments to scale up and improve margins. Vedanta's ability to turn around these assets would be a key credit driver," it said.

Large investments could further put pressure on the company's leverage, given "we currently do not envisage any earnings accretion in our projected leverage metrics." As a next step, the Committee of Creditors (CoC) will vote on the revised resolution plans submitted by all the bidders. After the CoC nod, the transaction is subject to approvals from various regulatory authorities. The entire process could take 8-12 months to complete.

The Adani Group was Vedanta's main competitor in the final auction round for JAL, whereas 3 other qualified rival bidders that included Jindal Steel & Power, Dalmia Bharat and PNC Infratech pulled out.

"The lenders are set to vote on the final bids after considering the bidders' source of funds, feasibility of proposals, and payment terms," CreditSights said. "Given the lenders’ admitted claims amount to more than ₹59,000 crore, lenders will likely be forced to take a haircut of around 71 per cent." The acquisition is pending approval from National Company Law Tribunal (NCLT) and the Competition Commission of India (CCI).

JAL was founded in 1979 by Indian entrepreneur Jaiprakash Gaur. It has various business lines including engineering, procurement and construction services for infrastructure and power projects (a stake in a 2.2 GW power unit); real estate development including 4,000-acre land in Delhi-NCR region; cement production (10 million tonnes); fertilizer production; Hotel (5 hotels) and golf course management.

JAL embarked on an aggressive debt-funded expansion program in the early 2000s, and faced financial distress beginning 2008. Despite several major asset sales, it ultimately defaulted on loans and faced insolvency proceedings beginning 2018, and was admitted into India's IBC program in June-2024.

As part of the deal, Vedanta may also be liable to pay additional fees to JAL's creditors, should JAL win an ongoing land allocation dispute with a local state land authority, Yamuna Expressway Industrial Development Authority (YEIDA). The case is currently being heard at the Supreme Court after the state High Court ruled in favour of YEIDA to cancel the land allotment in March 2025.