Vedanta shares plunge after US short-seller flags ‘unsustainable debt’

In a media statement, the Vedanta Group described the Viceroy report as “a malicious combination of selective misinformation and baseless allegations,” issued with the sole objective of creating false propaganda, and “without making any attempt to contact” the Group.

“It only contains compilation of various information — which is already in the public domain, but the authors have tried to sensationalise the context to profiteer from market reaction. The timing of the Report is suspect and could be to undermine the forthcoming corporate initiatives,” the Vedanta statement said.

Viceroy Research acknowledged it is a short seller and that it stood to profit if the Vedanta stocks fell as a result of its report. “As of the publication date of this report, you should assume that the authors have a direct or indirect interest/position in all stocks (and/or options, swaps, and other derivative securities related to the stock) and bonds covered herein, and therefore stand to realize monetary gains in the event that the price of either declines,” the Viceroy report said in a disclaimer.

“To service its own debt burden, VRL is systematically draining VEDL, forcing the operating company to take on ever-increasing leverage and deplete its cash reserves. This looting erodes the fundamental value of VEDL, which constitutes the primary collateral for VRL’s own creditors… (and) drives the increase in the Group’s insolvency risk,” the report said.

In a post on social media platform X, former Rajya Sabha MP and BJP national executive member Swapan Dasgupta said: “Is there a concerted attempt by dodgy US financial entities/ research organisation to undermine India’s corporates/ financial institutions? There are too many coincidences. I think the security agencies should investigate.”

Is there a concerted attempt by dodgy US financial entities / research organisation to undermine India’s corporates/ financial institutions.? There are too many coincidences. I think the security agencies should investigate.

— Swapan Dasgupta (@swapan55) July 9, 2025

The Viceroy report pointed out that the Vedanta Group’s gross finance costs and effective interest rate rose consistently from $1.3 billion (7.2%) in FY21 to $2 billion (13%) in 2025, while the Group’s gross interest-bearing liabilities fell from $17.5 billion in FY21 to $15.6 billion in 2025.

However, the report noted that the Group’s cash and short-term investments have fallen from $5.9 billion in FY21 to $2.6 billion in FY25. “Net debt has increased, as cash and short-term investments have been depleted at a disproportionately higher rate than debt has been repaid,” it said.

The report claimed that Vedanta’s “proposed demerger will merely spread the Group’s insolvency across multiple, weaker entities, each burdened with a legacy of impaired assets and unserviceable debt.”

Founded and chaired by Anil Agarwal, Vedanta Group is a global conglomerate, primarily focused on India. Listed on the Bombay Stock Exchange and the National Stock Exchange, Mumbai-based VEDL is a “uniquely diversified company across the natural resources spectrum.” VRL, the London-based holding company, was founded in 2003.

According to a disclosure to SEBI on July 5, encumbrance over 220.5 crore equity shares of VEDL, representing 56.38% of the total share capital held by VRL through intermediate holding companies, was released following the full repayment of a $200 million facility agreement, for which a no-objection certificate was received from Canara Bank London Branch on July 3.

Vedanta Limited stock movement on July 9. (Screenshot: BSE)

Founded in 2016 by British short seller Fraser John Perring with Australian partners Aiden Lau and Gabriel Bernarde, Viceroy Research LLC claims to be an investigative financial research group registered in Delaware, United States. On its website, Viceroy says its research has raised red flags on many companies, including Wirecard, the German payment giant that filed for bankruptcy in 2020.

Multiple “material quantitative and qualitative discrepancies” listed in the Viceroy report include claims that “Vedanta’s interest expenses vastly exceed its reported note rates, expenses across operating subsidiaries are systematically capitalized, and billions of dollars of disputed expenses are kept off-balance sheet and undisclosed in financial reports.”

‘Unsustainable’ Dividends

VEDL has paid “disproportionately large” dividends totalling $10.7 billion (₹85,503 crore) since FY21, consistently exceeding its free cash flow and accrued $5.6 billion free cash flow shortfall over the last 3 years, the report pointed out.

Claiming that VRL’s financing needs dictate VEDL’s dividends, which are “funded not by free cash flow but by taking on more debt,” the report called this upstreaming process “highly inefficient” because “a significant portion of every dividend issued leaks to minority shareholders.”

‘Artificial Brand Fees’

According to the report, VRL extracts hundreds of millions of dollars annually from VEDL and its subsidiaries through “brand fees” that lack any commercial justification and are “designed to bypass dividend leakage to minority shareholders, including the government of India.”

In FY24 alone, the report said, these fees amounted to $338 million, representing 37% of the net profit of VEDL and its subsidiaries. By comparison, it pointed out, Tata Steel’s brand fees are 0.25% of the turnover, capped at ₹200 crore ($24.01m) “despite operating a brand with far greater public recognition and that is actually being used.”

Loans from subsidiaries

According to Viceroy, VRL uses loans from VEDL subsidiaries to aggressively purchase more VEDL stock in “blatant violation of the Companies Act.” Also, over $122 million of the loan was “written off” and never repaid to VEDL, said the report.