Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On 31 May I wrote about the proposal from the <a href="https://www.smartkarma.com/entities/adani-power-ltd" target="_blank" data-smartkarma-citation="entities:247:1" rel="noopener">Adani Power Ltd (ADANI IN)</a> promoter group to take the Company private through a Delisting Offer, a measure that obtained shareholder approval, as expected, on 25 June.While the eventually unsuccessful delisting offer of <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> and the eventually successful delisting offer for <a href="https://www.smartkarma.com/entities/hexaware-technologies-ltd" target="_blank" data-smartkarma-citation="entities:7882:1" rel="noopener">Hexaware Technologies (HEXW IN)</a> took the spotlight, Adani Power effectively languished for months. I had, interestingly enough, been talking about this to people who would listen. It has been something of a no-brainer to me because...<ol style="list-style-type: lower-alpha;">
<li>As it was trading in the INR 35-36 area in July and August, then again in September to early November, it was trading VERY cheap on an option basis. With such a very high debt/EBITDA ratio, buying the company at a premium to then-current EV/EBITDA multiple required a large jump in price. </li>
<li>There was no premium being applied despite improvements in the positioning of IPPs in India. </li>
</ol>When <a href="https://www.adanipower.com/newsroom/media-releases/Adani-Power-announces-Q2-FY21-results" target="_blank" rel="noopener">Q2 Results</a> came out on 5 November (<a href="https://www1.nseindia.com/corporate/ADANIPOWER_06112020195030_Intimation06112020.pdf" target="_blank" rel="noopener">Q2 presentation 6 Nov</a>) much better than the market expected (revenues +29%yoy, consolidated EBITDA +126%yoy, PBT up 18-fold), the stock got a pop.  But it did not last long. The one-off nature of the regulatory (Appellate Tribunal Of Electricity (APTEL)) approvals of Adani Power Maharashtra Ltd’s claims for coal shortfall compensation and carrying costs meant the company's Q2 profits were less than exciting on their own, despite signs of stronger Average Plant Load Factor levels ahead. On a media call early Thursday 6 November, the MD and CEO of Adani Transmission and the MD of Thermal Power at Adani Power said that the delisting process "is in process", saying they have approval from six lenders, and other lenders would also like to approve. But the stock did not move much.<h3>Then Things Changed</h3>Things have been somewhat quiet since then, but this past week, things got exciting. The company won a short-term contract to supply 6,100MW of electricity to the Punjab Govt.<div class="content-highlight">And....   Adani Power shares rose 54.8% this past week (in four trading days), in fabulous volumes.</div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/665/original/Screenshot%202020-12-06%20at%2012.33.14%20PM.png?1607229262" class="editor-image img-responsive" data-smartkarma-image-id="176665"></figure></section><div class="content-highlight">
That leaves us with questions about the Delisting Offer Reverse Book Build to come.
And given the shareholder structure, the questions are understandable. 
</div>More discussion below.

On 31 May I wrote about the proposal from the Adani Power Ltd (ADANI IN) promoter group to take the Company private through a Delisting Offer, a measure that obtained shareholder approval, as expected, on 25 June.While the eventually unsuccessful delisting offer of Vedanta Ltd (VEDL IN) and the eventually successful delisting offer for Hexaware Technologies (HEXW IN) took the spotlight, Adani Power effectively languished for months. I had, interestingly enough, been talking about this to people who would listen. It has been something of a no-brainer to me because...
As it was trading in the INR 35-36 area in July and August, then again in September to early November, it was trading VERY cheap on an option basis. With such a very high debt/EBITDA ratio, buying the company at a premium to then-current EV/EBITDA multiple required a large jump in price. 
There was no premium being applied despite improvements in the positioning of IPPs in India. 
When Q2 Results came out on 5 November (Q2 presentation 6 Nov) much better than the market expected (revenues +29%yoy, consolidated EBITDA +126%yoy, PBT up 18-fold), the stock got a pop.  But it did not last long. The one-off nature of the regulatory (Appellate Tribunal Of Electricity (APTEL)) approvals of Adani Power Maharashtra Ltd’s claims for coal shortfall compensation and carrying costs meant the company's Q2 profits were less than exciting on their own, despite signs of stronger Average Plant Load Factor levels ahead. On a media call early Thursday 6 November, the MD and CEO of Adani Transmission and the MD of Thermal Power at Adani Power said that the delisting process "is in process", saying they have approval from six lenders, and other lenders would also like to approve. But the stock did not move much.Then Things ChangedThings have been somewhat quiet since then, but this past week, things got exciting. The company won a short-term contract to supply 6,100MW of electricity to the Punjab Govt.And....   Adani Power shares rose 54.8% this past week (in four trading days), in fabulous volumes.
That leaves us with questions about the Delisting Offer Reverse Book Build to come.
And given the shareholder structure, the questions are understandable. 
More discussion below.

ADANI POWER On the Move - Fundamentals Better and Delisting Offer Imminent But... There Are RISKS...

David Blennerhassett


For the month of October, 15 new deals were discussed on Smartkarma with an overall announced deal size of ~US$31bn.


Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow up discussions, or simply click on the insight link(s) below the name.






New Deals


Industry


Size (US$bn)


Type


Premium




Australia




Coca Cola Amatil (CCL AU) 
Beverage Bottler
6.9
Poss. Scheme
25%


Coca Cola Amatil: Flat Or Fizzy?







Link Administration Holdings (LNK AU) 
Super registry
2.1
Poss. Scheme
30%


Link Admin/PEP: All Together Now. Again Link Admin: Hardball Tactics After Meagre Bump 



Northern Star Resources (NST AU) / Saracen Mineral Holdings (SAR AU) 
Mining
4.4
Scheme




Northern Star/Saracen: Merger Of Equals
Saracen – Trade the Northern Star Deal and Then Stay Long Northern Star




Hong Kong




CIMC-TianDa Holdings (445 HK) 
Airport facilities
0.3
Scheme
20.36%


CIMC-Tianda (445 HK): Scheme Offer Lead By CIMC



Hengxing Gold Holding (2303 HK) 
Mining
0.3
Pre-con Scheme
(2.43%)


Hengxing (2303 HK): Offer From Shandong Gold



Powerleader Science &amp; Tech (8236 HK) 
Cloud Computing
0.1
Merger by Absorption
14.6%


Powerleader (8236 HK): Small Deal, Trading Wide



Shanghai Prime Machinery H (2345 HK) 
Turbines
0.4
Merger by Absorption
68.4%


Shanghai Prime (2345 HK): Delisting Offer From Parent



Sun Art Retail (6808 HK) 
Hypermarkets
2.2
MGO
2.14%


Sun Art (6808 HK): Alibaba Takes Control



Japan




Medical &amp; Biological Lab (4557 JP) 
Diagnostics
0.1
Tender Offer
23.8%


JSR (4185 JP) Tender Offer for Medical &amp; Biological Labs (4557 JP)


Shimachu Co Ltd (8184 JP)
Retailer
1.6 - 2.1
Tender Offer
45.8%/91.0%



DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again Nitori To Make a Rival Bid for Shimachu? More Fun To Go 
Gaming Out a Nitori Bid for Shimachu Nitori Bids UP For Shimachu - Now Things Slow Down  




US




HUYA Inc (HUYA US) 
Gaming
7.2
Merger



Huya – Generous for Douyu and the New Global Streaming Landscape Gets Interesting



PNM Resources (PNM US) 
Energy
4.3
Tender Offer
10%


PNM Resources - Iberdrola: Friendly Acquisition



Wanda Sports Group (WSG US) 
Events
0.1
Prelim Proposal
38.9%


Wanda Sports (WSG US): Preliminary Proposal From Dalian Wanda



Europe/UK




G4S PLC (GFS LN) 
Security Service
0.4
Cash Offer
30%


G4S - GardaWorld: Lowball Offer



Talktalk Telecom (TALK LN) 
Telco
1.0
Non-binding Offer
17%


TalkTalk - Toscafund: Preliminary &amp; Non-Binding Proposal





Source: Smartkarma Insights


The average premium for the new deals announced (or first discussed) in October was ~25% and the YTD average premium for all deals discussed on Smartkarma (121 all-in) is ~32%.  The average for all deals discussed on Smartkarma in 2019 (145 deals all-in) was 31.5%.



The charts below provide a snapshot of deals YTD discussed on Smartkarma. Where the deal is a merger of equals or similar, I've assigned no premium.







Summary of News in October of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation. Where a new insight was written on these names in July, I've included a link, in bold, to that insight in italics.)






Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

15-Oct: FRB approval 20-Oct: Scheme Meeting set for the 20 Nov




Cardinal Resources (CDV AU) 

22-Oct: Cardinal Resources: Nordgold's "Competing Offer"
23-Oct: Cardinal announced that shareholders holding 19.38% of shares out intend to accept Shandong's unconditional off-market Offer by 30 October - provided there be no superior proposal, or is Shandong extends its Offer (currently expected to close on the 30 October, unless extended). 23-Oct: Nordgold has now lodged an application with the Takeovers Panel concerning “the clear and unambiguous interpretation” of Shandong’s Last and Final Statement.
27-Oct: Nordgold has withdrawn its Takeovers Panel application. But stands its ground that Shandong's statements are materially misleading.




Citadel Group (CGL AU) 

29-Oct: Scheme Meeting set for the 1 December.




Cromwell Property (CMW AU) 

No October update




DWS Ltd (DWS AU) 

13-Oct: DWS will not declare or pay any permitted special dividend. The Scheme payment will be fixed at A$1.20/share.




OptiComm Ltd (OPC AU) 

13-Oct: OptiComm: Aware Super's Superior Optics 15-Oct: OptiComm: Uniti Sees Aware And Raises




Village Roadshow (VRL AU) 

6-Oct: Mittleman bumps stake to 10.09% (from 8.50% previously) and according to media reports, opposes BGH's Scheme.    7-Oct: Village Roadshow (VRL AU) said it would proceed with the Scheme - and is engaged in correspondence with Mittleman.   12-Oct: The Independent Expert concludes the Offer is fair &amp; reasonable. 










Hong Kong


Comments (with links to announcements &amp; insights)




Allied Properties (H.K.) (56 HK) 
5-Oct: Remarkably - the judge has declined to sanction the Scheme.
Here's the judgment. Para 66 mentions the headcount test. I have no clue why - HK-incorporated companies do not adhere to a headcount test. Baffling.
12-Oct: Allied Properties (56 HK): Amateur Hour 19-Oct: Allied has appealed the High Court judgment. The Appeal will be heard on Monday, 23rd November 2020 at 10:00 a.m.



AMVIG Holdings (2300 HK) 
4-Oct: SPA is done - conditional MGO triggered. Composite doc to be dispatched on or before 15 October.  15-Oct: Composite doc has been delayed until the 2 November from the 15 October. This was to be expected. I had the 30 October in my initial timetable. 



Beijing Jingneng Clean Energy (579 HK) 
5-Oct: In its monthly update, the company announces that there is no update.



Car Inc (699 HK) 
No October update



CGN New Energy Holdings (1811 HK) 
30-Sep: The deal is off.



Changshouhua Food (1006 HK) 
26-Oct: Scheme doc out - court meeting to be held on the 19 November. Cheques on (or before) the 14 December. IFA (Somerley) considers the Offer fair &amp; reasonable. 



China Zhongdi Dairy (1492 HK) 
16-Oct: The despatch of the Composite Doc has been pushed out to the 18 January 2021. A significant delay. This may not complete until early 2Q21.  23-Oct: I see 12.11% of shares out have moved into Halycon, according to CCASS. That is Green Farmlands stake, part of the Offeror's.  27-Oct: 27.99% of shares out have given irrevocables to accept the MGO. That will take the Offeror's stake to 71.74%, at a minimum, under the MGO.



Cross Harbour Holdings (32 HK) 
7-Oct: The Composite Doc has been delayed until the 23 Oct (on or before) from the 8 October. Such a delay is pretty standard.   23-Oct: The Composite Doc for Cross Harbour Holdings (32 HK) has been despatched. The first close is the 23 Nov.



Get Nice Holdings (64 HK) 

22-Oct: Composite doc dispatched for Get Nice Holdings (64 HK). The first close is the 13 November. 




Haier Electronics Group Co (1169 HK) 

12-Oct: Haier Electronics Group Co (1169 HK) announced that Haier Smart Home (600690 CH)'s application with the CSRC for the proposed issuance of HSH H shares is "progressing".




Leyou Technologies (1089 HK) 

8-Oct: Re: regulatory approvals, Leyou Technologies (1089 HK) said Canadain and US regulatory bodies have signed off on the Offer from Tencent Holdings (700 HK). Scheme doc to be despatched on or before the 9 November. 




Macau Legend Development (1680 HK) 

5-Oct: The stake sale completed. The MGO is now triggered. The Composite Doc is expected to be despatched on the 12 October. 12-Oct: The Composite Document has been delayed until the 21 October, from the 12 October. This was expected but is still a full month earlier than what I would have anticipated.   21-Oct: The Composite Document has now been further delayed until the 3 November. Getting closer to my 21 November despatch target. 




Yixin Group Ltd (2858 HK) 
23-Oct: Bitauto Holdings (BITA US) shareholders approve the merger plan. The merger is expected to close on or around the 10 November. The Composite Doc for Yixin Group Ltd (2858 HK)'s downstream MGO will then be despatched 7 business days later.









India


Comments (with links to insights)




Allcargo Logistics (AGLL IN) 

25-Oct: Allcargo Logistics (AGLL IN): Shareholder Vote Encouraging. Buying Opportunity




Hexaware Technologies (HEXW IN) 

No October update




INEOS Styrolution India Limited (INEOS IN) 

No October update




J.B. Chemicals &amp; Pharmaceut (JBCP IN) 

No October update




Sequent Scientific (SEQ IN) 

No October update




Vedanta Ltd (VEDL IN) 

4-Oct: Vedanta Limited Reports Results: KEY Info on Deal Funding Embedded 8-Oct: Vedanta Limited Reports Results: KEY Info on Deal Funding Embedded 8-Oct: Vedanta - Someone Is Playing Silly Buggers But Even On The Last Day Investor Strategy Matters 11-Oct: Vedanta Delisting Proposal/Offer Fails (We Think) 11-Oct: Vedanta (VEDL IN): A Failed Delisting Will Now Pressure The Stock 13-Oct: VEDL Delisting Fail Day1 - Reading Between the Lines of the Trading Data 21-Oct: Vedanta Limited - Caught in Economic Purgatory but Governance Hell?

















Indonesia


Comments 




Bank Permata (BNLI IJ) 

No October update











Japan


Comments (with links to insights)




Cocokara Fine (3098 JP) 
No October update



FamilyMart Co Ltd (8028 JP) 

22-Oct: FamilyMart Co Ltd (8028 JP) has now officially been designated a Security to be Delisted by the TSE. The last day of trading is November 11. Delisting Date is November 12. 22-Oct: Familymart Delisting and Its Nikkei 225 Replacement Is Nexon (3659)




Hinokiya Holdings (1413 JP) 

No October update



 Hitachi Capital (8586 JP) / Mitsubishi UFJ Lease &amp; Finance (8593 JP) 

26-Oct: The Right Trade May Be Hitachi




Keihin Corp (7251 JP) / Showa Corp (7274 JP) 

16-Oct: Honda Tenders Done - Now For The Residuals 28-Oct: The TOPIX exclusions on Showa Corp (7274 JP), Nissin Kogyo (7230 JP), and Keihin Corp (7251 JP) took place after the close. Now it will be the trickle-out until delisting. Delisting will be on 11 November, and the last day of trading will be on the 10th. Effective Date of the Acquisition is the 13th of November. 




Kirindo Holdings (3194 JP) 

16-Oct: In what might be a first that I have seen, Kirindo Holdings (3194 JP) today announced the Record Date for the EGM to be held to squeeze out minorities. That's not unusual. What IS unusual is that it has happened prior to the end of the Tender Offer. The EGM itself will be sometime in December. The date of the EGM may be announced on 19 October.  27-Oct: successful at 69.75%. Now we head to EGM and delisting. 




LIXIL VIVA (3564 JP) 

15 Oct:  Buyback Tender successful.




Mcubs Midcity Investment Cor (3227 JP) 

22-Oct: Unitholders have approved the Deal. Japan Retail Fund Investment (8953 JP) unit holders have also voted in favour of the transaction. 




Nichii Gakkan Co (9792 JP) 

Delisting expected 5 November




NTT Docomo Inc (9437 JP) 

13-Oct: NTT Docomo: The Three Arbs and the Great Re-Allocation Trade




Ryoyo Electro (8068 JP) 

No October update




Sanyo Chemical Ind (4471 JP) /  Nippon Shokubai (4114 JP) 
22-Oct: SanyoChem/Shokubai Deal Cancelled - The Trick Is NOT to Look Inside the Diaper




Softbrain (4779 JP) 

No October update
















New Zealand


Comments (with links to announcements)




Metlifecare Ltd (MET NZ) 

3-Oct: Metlifecare Ltd (MET NZ) shareholders approve Scheme.  "It is anticipated that the Scheme will be implemented and shareholders will be paid NZ$6 per share on or around 29 October 2020". 
8-Oct: Metlifecare Ltd (MET NZ) has announced a "shareholder has lodged a Notice of Opposition to the High Court application for the Scheme of Arrangement with Asia Pacific Village Group Limited".
14-Oct: The High Court hearing has been delayed until the 20 October from the 15 October. 
15-Oct:  Metlifecare: Statutory Vacuum
18-Oct: The Panel has given a "no objection" statement. The Court does not have to rely on this statement - but it usually does. This looks (finally) done. 
20-Oct: Metlifecare: Scheme Sanctioned. Potential Bad Precedent Averted











Singapore


Comments (with links to insights and announcements)




Accordia Golf Trust (AGT SP) 

Now in progress/wind-down mode




Capitaland Commercial Trust (CCT SP) 

12-Oct: Capitaland Commercial Trust (CCT SP) has announced that the Trust Scheme was sanctioned by the Court yesterday and confirmed that the last trading day of the CCT units will be the 16 October.




ESR-REIT (EREIT SP) / Sabana Shari'ah Compliant Industrial REIT (SSREITR SP) 

No October update










Taiwan


Comments 




Boardtek Electronics (5349 TT) 
No October update



Casetek Holdings (5264 TT) 
1-Oct: According to various media sources, shareholders have approved the merger with Pegatron. 








Thailand


Comments 




COL PCL (COL TB) 
No October update










Vietnam


Comments (with links to announcements)




Viglacera Corp (VGC VN) 
No October update










Middle East


Comments 




Samba Financial Group (SAMBA AB) /
National Commercial Bank (NCB AB) 

No October update









Europe/UK


Comments (with links to announcements and insights)




Ahlstrom-Munksjo (AM1 FH) 
No October update



Altice NV A (ATC NA) 
No October update



Bolsas y Mercados Espanoles (BME SM) 
No October update



CaixaBank SA (CABK SM) 
28-Oct: Bankia - CaixaBank: Merger in Progress, Spread Attractive




Play Communications SA (1P1 GR) 
No October update



William Hill (WMH LN) 
5-Oct: William Hill - Caesars (Almost) Done Deal, Trading Above Terms






Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

On 24th August 2020, India-based integrated logistics company <a href="https://www.smartkarma.com/entities/allcargo-logistics-ltd" target="_blank" data-smartkarma-citation="entities:10602:1" rel="noopener">Allcargo Logistics (AGLL IN)</a> announced they had received a “<a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/9bf60829-9be9-4e37-b6c2-234cc3203040.pdf" target="_blank" rel="noopener">Delisting Proposal Letter</a>" from members of its Promoter Group (Shashi Kiran Shetty and Talentos Entertainment Private Limited). A board meeting was convened on 27th August and a Merchant Banker (Inga Ventures) was appointed to carry out due diligence. On 5th September, the board approved the Offer after reviewing the Merchant Banker's due diligence report. These events were discussed in my previous insight <a href="https://www.smartkarma.com/insights/allcargo-logistics-agll-in-indian-delisting-offer-trading-cheap" target="_blank" data-smartkarma-citation="insights:43137" rel="noopener">Allcargo Logistics (AGLL IN): Indian Delisting Offer Trading Cheap</a>. After market-close on 22nd October, the company <a href="https://www.bseindia.com/stock-share-price/allcargo-logistics-ltd/allcargo/532749/voting-results/" target="_blank" rel="noopener">announced</a> the voting results for the delisting offer which confirmed that the shareholders have approved the transaction. Below is a closer look at the voting results and their potential implications regarding the probability of Deal Completion.

On 24th August 2020, India-based integrated logistics company Allcargo Logistics (AGLL IN) announced they had received a “Delisting Proposal Letter" from members of its Promoter Group (Shashi Kiran Shetty and Talentos Entertainment Private Limited). A board meeting was convened on 27th August and a Merchant Banker (Inga Ventures) was appointed to carry out due diligence. On 5th September, the board approved the Offer after reviewing the Merchant Banker's due diligence report. These events were discussed in my previous insight Allcargo Logistics (AGLL IN): Indian Delisting Offer Trading Cheap. After market-close on 22nd October, the company announced the voting results for the delisting offer which confirmed that the shareholders have approved the transaction. Below is a closer look at the voting results and their potential implications regarding the probability of Deal Completion. 

Allcargo Logistics (AGLL IN): Shareholder Vote Encouraging. Buying Opportunity.

Last Week in Event SPACE: Shimachu, Cathay, Nexon/Familymart, KWG Living, Tata Consultancy, Sun Art

Equity Bottom-Up

In Comedìa (later named La Divina Commedia), Dante Alighieri constructed a framework for understanding the faults and foibles of humans and how their souls progress after Death to their final state. The work follows Dante through 'his' discovery (with the help of guides Virgil, Beatrice, and St Bernard of Clairvaux) and realization of inherent human sinfulness, to human penitence (in Purgatorio), which eventually leads the Righteous on their path to God and Heaven (Paradiso). 
It starts, as occasionally happens in markets as well, with a descent into Hell.
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/166/382/original/Bartolomeo_Di_Fruosino_-_Inferno,_from_the_Divine_Comedy_by_Dante_%28Folio_1v%29_-_WGA01339.jpg?1603246987" class="editor-image img-responsive" data-smartkarma-image-id="166382"></figure>
<div class="content-caption">source: Dante's Inferno by Bartolomeo di Fruosino (painted 1430-1435)</div>
</section>
From the forest of Perdition through the vestibule of Indifference, one crosses the river Acheron into Limbo - the first Circle of Hell. The next 8 Circles of Hell are split into three sections. Upper Hell is for the self-indulgent - indeed Circle 3 is for the Gluttonous and Circle 4 for the Avaricious &amp; Prodigal, who spend eternity paired up with each other, rolling boulders around colliding with each other (watched over - in a "coincidence" which will be believed by no observer of Japanese M&amp;A - by Plutus). Sinners bound for worse punishment pass through the City of Dis where reside the Heretics, and on the other side one encounters the second category which is the Violent. Beyond that travellers enter Nether Hell, reserved for the Malicious and Fraudulent, with the bottom circle reserved for the Traitorous. The deeper one goes, the more grave the sin.
It could be argued that <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> had fallen, "realized" its sin in 2019 through a corporate governance discount because of Cairn India funding the Volcan investment in Anglo, and lawsuits which have caused stoppages in the copper and iron ore business. The Covid-19 crash in March took the stock to below 0.4x accounting book value per share and below 0.3x book if one marked Hindustan Zinc to market. 
Vedanta Limited (VEDL) has just ended a months-long process by which it could have been taken out by its promoters through a Delisting Offer - a possible shortcut back through Purgatorio to Paradise. However, VEDL got lost along the way, and is now firmly back in Purgatory. 
<h3>Vedanta Resources on the other hand probably never got out of the Inferno.</h3>
Some observers may believe it firmly ensconced in the 4th Circle. Creditors may put it lower down, viewing VEDR's actions as Violence against one's neighbours and oneself. Those creditors most upset might go further, putting VEDR into the 8th Circle of hell - the one reserved for Grafters, Hypocrites, Thieves, and False Counselors. Hell hath no fury like a scorned creditor (at least not until you get to the Ninth Circle). 
VEDL may be in Limbo looking up to Purgatory, but VEDR today saw Moody's place Vedanta Resources' B1 Corporate Family Rating (CFR) <a href="https://www.moodys.com/research/Moodys-places-Vedanta-Resources-ratings-under-review-for-downgrade--PR_434665" target="_blank" rel="noopener">under review for downgrade</a>.
<blockquote>
The review follows an increase in refinancing risk and significant funding needs at the holding company level, following Vedanta Resources' failure to acquire the balance shareholding in key subsidiary Vedanta Limited that would have improved access to group cash.
Moody's review will focus on the holding company's ability to refinance its upcoming debt maturities in the fiscal year ending March (fiscal 2021) and fiscal 2022. Moody's expects to conclude the review within 90 days.
</blockquote>
<h2>The NEW News</h2>
Yesterday, the board of <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>, the subsidiary of Vedanta Limited, and the biggest source of cash in the corporate chain announced the result of its Board Meeting which considered the release of its unaudited Q2 results and an "Interim Dividend", where the decision was made to pay <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/59711E9D-683B-4BA9-8F3A-3B897E334161-181347.pdf" target="_blank" rel="noopener">a dividend of INR 21.30/share</a> to shareholders as of record date 28 October 2020. 
This is a big dividend - roughly 10% of market cap - on top of what was near 10% of market cap in May - but neither were "special dividends" which means both dividends fall squarely within the purview of Vedanta Limited's official <a href="https://www.vedantalimited.com/CorporateGovernance/vedl_dividend_policy_may_15_final.pdf" target="_blank" rel="noopener">Dividend Distribution Policy</a> which states... 
<blockquote>
In every financial year, the Board aims to distribute to its equity shareholders...
1.1.  The entire dividend income (net of taxes) it receives from its subsidiary, Hindustan Zinc Ltd. (this does not apply to any one‐time special dividends received from Hindustan Zinc Ltd. which will be at the discretion of the Board); and
1.2.  a Minimum 30% (including taxes, cess, and levies, if any relating to the dividend) of Attributable Profit after Tax (before exceptional items) of the Company excluding its share of profits in Hindustan Zinc Ltd for the year. Such profits will be net of dividend payout to preference shareholders, if any.
</blockquote>
In May this year HZL paid INR 16.5/share and now this will be INR 21.3/share. That is a total of INR 37.8/share or INR 34.02/share after tax. VEDL owns 2,743,154,310 shares of HZL which ends up being INR 93.322 billion.
Based on the number of VEDL shares outstanding as of the end of September, that is INR 25.106/share owed to every shareholder of Vedanta just from the HZL dividends plus the amount from VEDL. <a href="https://economictimes.indiatimes.com/markets/stocks/news/vedanta-to-receive-rs-5843-crore-as-dividend-from-hindustan-zinc/articleshow/78770756.cms?utm_source=contentofinterest&amp;utm_medium=text&amp;utm_campaign=cppst" target="_blank" rel="noopener"></a>
Of course, that doesn't solve the problem. 
In the past months I rarely, if ever, get questions about court cases, commodity market fundamentals, average selling prices, production estimates, environmental issues being resolved, etc. The questions I get asked are two-fold. 
<ol>
<li>Does VEDL have good enough governance to follow the Board's stated dividend distribution policy?</li>
<li>Will VEDL instead lend those funds to its parent in contravention of good governance and appropriate stewardship of VEDL financial assets? </li>
</ol>
My answers remain: 
<ol>
<li>I do not know, but the board should follow its stated policies. </li>
<li>I do not know, but the board should receive independent advice about doing so and if it chooses to lend money to its own parent company in contravention of the spirit of the rules against related party transactions, it should set rates and terms and conditions on an arms length basis as determined by a third party. Certainly, if there is money to be invested, lending it to VEDR cannot be the single best investment target from both a return and risk perspective for VEDL shareholders in the whole universe. </li>
</ol>
The fact that a body of independent directors with serious backgrounds should have some weight and should be able to make appropriately independent decisions on behalf of VEDL shareholders is usually met with a hearty guffaw. 
Independent board members of Vedanta Limited should take note. Minority investors do not trust your independence unless you act like independent directors. Expectations will build. The dividend owed is 25% of the current share price. 
More, of course, below the fold.

In Comedìa (later named La Divina Commedia), Dante Alighieri constructed a framework for understanding the faults and foibles of humans and how their souls progress after Death to their final state. The work follows Dante through 'his' discovery (with the help of guides Virgil, Beatrice, and St Bernard of Clairvaux) and realization of inherent human sinfulness, to human penitence (in Purgatorio), which eventually leads the Righteous on their path to God and Heaven (Paradiso). 
It starts, as occasionally happens in markets as well, with a descent into Hell.


source: Dante's Inferno by Bartolomeo di Fruosino (painted 1430-1435)

From the forest of Perdition through the vestibule of Indifference, one crosses the river Acheron into Limbo - the first Circle of Hell. The next 8 Circles of Hell are split into three sections. Upper Hell is for the self-indulgent - indeed Circle 3 is for the Gluttonous and Circle 4 for the Avaricious &amp; Prodigal, who spend eternity paired up with each other, rolling boulders around colliding with each other (watched over - in a "coincidence" which will be believed by no observer of Japanese M&amp;A - by Plutus). Sinners bound for worse punishment pass through the City of Dis where reside the Heretics, and on the other side one encounters the second category which is the Violent. Beyond that travellers enter Nether Hell, reserved for the Malicious and Fraudulent, with the bottom circle reserved for the Traitorous. The deeper one goes, the more grave the sin.
It could be argued that Vedanta Ltd (VEDL IN) had fallen, "realized" its sin in 2019 through a corporate governance discount because of Cairn India funding the Volcan investment in Anglo, and lawsuits which have caused stoppages in the copper and iron ore business. The Covid-19 crash in March took the stock to below 0.4x accounting book value per share and below 0.3x book if one marked Hindustan Zinc to market. 
Vedanta Limited (VEDL) has just ended a months-long process by which it could have been taken out by its promoters through a Delisting Offer - a possible shortcut back through Purgatorio to Paradise. However, VEDL got lost along the way, and is now firmly back in Purgatory. 
Vedanta Resources on the other hand probably never got out of the Inferno.
Some observers may believe it firmly ensconced in the 4th Circle. Creditors may put it lower down, viewing VEDR's actions as Violence against one's neighbours and oneself. Those creditors most upset might go further, putting VEDR into the 8th Circle of hell - the one reserved for Grafters, Hypocrites, Thieves, and False Counselors. Hell hath no fury like a scorned creditor (at least not until you get to the Ninth Circle). 
VEDL may be in Limbo looking up to Purgatory, but VEDR today saw Moody's place Vedanta Resources' B1 Corporate Family Rating (CFR) under review for downgrade.

The review follows an increase in refinancing risk and significant funding needs at the holding company level, following Vedanta Resources' failure to acquire the balance shareholding in key subsidiary Vedanta Limited that would have improved access to group cash.
Moody's review will focus on the holding company's ability to refinance its upcoming debt maturities in the fiscal year ending March (fiscal 2021) and fiscal 2022. Moody's expects to conclude the review within 90 days.

The NEW News
Yesterday, the board of Hindustan Zinc (HZ IN), the subsidiary of Vedanta Limited, and the biggest source of cash in the corporate chain announced the result of its Board Meeting which considered the release of its unaudited Q2 results and an "Interim Dividend", where the decision was made to pay a dividend of INR 21.30/share to shareholders as of record date 28 October 2020. 
This is a big dividend - roughly 10% of market cap - on top of what was near 10% of market cap in May - but neither were "special dividends" which means both dividends fall squarely within the purview of Vedanta Limited's official Dividend Distribution Policy which states... 

In every financial year, the Board aims to distribute to its equity shareholders...
1.1.  The entire dividend income (net of taxes) it receives from its subsidiary, Hindustan Zinc Ltd. (this does not apply to any one‐time special dividends received from Hindustan Zinc Ltd. which will be at the discretion of the Board); and
1.2.  a Minimum 30% (including taxes, cess, and levies, if any relating to the dividend) of Attributable Profit after Tax (before exceptional items) of the Company excluding its share of profits in Hindustan Zinc Ltd for the year. Such profits will be net of dividend payout to preference shareholders, if any.

In May this year HZL paid INR 16.5/share and now this will be INR 21.3/share. That is a total of INR 37.8/share or INR 34.02/share after tax. VEDL owns 2,743,154,310 shares of HZL which ends up being INR 93.322 billion.
Based on the number of VEDL shares outstanding as of the end of September, that is INR 25.106/share owed to every shareholder of Vedanta just from the HZL dividends plus the amount from VEDL. 
Of course, that doesn't solve the problem. 
In the past months I rarely, if ever, get questions about court cases, commodity market fundamentals, average selling prices, production estimates, environmental issues being resolved, etc. The questions I get asked are two-fold. 

Does VEDL have good enough governance to follow the Board's stated dividend distribution policy?
Will VEDL instead lend those funds to its parent in contravention of good governance and appropriate stewardship of VEDL financial assets? 

My answers remain: 

I do not know, but the board should follow its stated policies. 
I do not know, but the board should receive independent advice about doing so and if it chooses to lend money to its own parent company in contravention of the spirit of the rules against related party transactions, it should set rates and terms and conditions on an arms length basis as determined by a third party. Certainly, if there is money to be invested, lending it to VEDR cannot be the single best investment target from both a return and risk perspective for VEDL shareholders in the whole universe. 

The fact that a body of independent directors with serious backgrounds should have some weight and should be able to make appropriately independent decisions on behalf of VEDL shareholders is usually met with a hearty guffaw. 
Independent board members of Vedanta Limited should take note. Minority investors do not trust your independence unless you act like independent directors. Expectations will build. The dividend owed is 25% of the current share price. 
More, of course, below the fold. 

Vedanta Limited - Caught in Economic Purgatory but Governance Hell?

India

Vedanta Limited is a leading global producer of metals, critical minerals, oil and gas, and technology. The company explores, extracts, and processes a diversified portfolio of resources including zinc, aluminum, copper, iron ore, and oil and gas. Vedanta Limited is headquartered in Mumbai, India, and was founded in 1979.

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