Viceroy Claims Vedanta's JAL Bid Risks Govt Stakes in Hindustan Zinc, Bharat Aluminium

US short-seller Viceroy Research has written to the Department of Investment and Public Asset Management (DIPAM), flagging mining giant Vedanta’s plans to acquire bankrupt Jaiprakash Associates Ltd (JAL). The Delaware-based firm says the ₹17,000 crore proposal poses a financial risk to the government’s stakes in Hindustan Zinc (HZL) and Bharat Aluminium Co. (BALCO).

Earlier this month, the Anil Agarwal-led conglomerate won a challenge process under JAL’s insolvency resolution, beating the Adani Group for assets ranging from real estate to the EPC sector.

In a letter dated September 19, Viceroy described the acquisition of JAL as an “unviable” transaction for Vedanta.

“JAL cannot fund its own acquisition, with a projected free cash flow shortfall of over ₹18,600 crore across five years,” the firm said. It added that Jaiprakash Associates is an asset with no internal cash generation and a structurally unprofitable portfolio.

“JAL has not produced a single rupee of sustainable free cash flow across any of its divisions... On a five-year view, the combined free cash flow shortfall from staged creditor payments exceeds ₹18,600 crore. JAL has no synergies within its own operating divisions or with any of Vedanta’s operating units,” the letter stated.

Viceroy warned that this would force India-listed Vedanta to rely on its most profitable subsidiaries to fund the acquisition, either through unsustainable debt-funded dividends from HZL and BALCO to Vedanta Ltd (VEDL) or through further leveraging of the conglomerate’s stakes in the two companies.

“HZL and BALCO, both partially owned by the Government of India, contributed about 42% of Vedanta’s normalised free cash flow in FY25 while generating only 31% of group revenue. These GoI-linked entities are being forced into unsustainable debt-funded dividends to support the parent, eroding their balance sheets,” the letter noted.

The firm further pointed out that Vedanta’s outstanding statutory dues, taxes, and environmental liabilities of about ₹4,847 crore declared in FY25 expose the state to additional risk. Without intervention, it said, public funds and government equity would effectively underwrite an unviable private acquisition.

“These (Hindustan Zinc and Bharat Aluminium) are the same entities in which the Government of India holds equity and which, until recently, retained strong balance sheets. That strength is now eroding. HZL alone has issued dividends far in excess of earnings and has begun funding shortfalls through new debt. The dividend strain is being masked by misrepresented cash flows,” Viceroy said. It added that brand fees at HZL are set to rise to 3% of turnover, while BALCO will begin paying brand fees after Vedanta Ltd’s demerger.

The letter comes amid worsening ties between Vedanta and the government. The Ministry of Petroleum and Natural Gas has already opposed the company’s demerger plan at the National Company Law Tribunal, and last week the government denied Vedanta an extension of its Cambay basin oil and gas block, transferring the asset to ONGC.