Shares of Hindustan Zinc and Vedanta Limited were under pressure for the second consecutive day on Thursday. While Vedanta declined 1.6 per cent intra-day on the BSE, Hindustan Zinc was down around 1 per cent. On Wednesday, Vedanta had declined 3.4 per cent, and Hindustan Zinc fell 2.6 per cent.
The pressure on the share price of the two companies, part of Anil Agarwal’s metals and mining giant Vedanta Resources, comes amid allegations by a US-based short-seller that the entire group structure of Vedanta was unsustainable and posed an underappreciated risk to creditors.
Viceroy Research had alleged Vedanta Resources, which didn’t have significant operations of its own, to service its debts, was systematically draining Vedanta Limited and forcing the operating company to take on ever-increasing leverage and deplete its cash reserve, which the short-seller termed as “looting.”
Vedanta is currently undergoing a restructuring that will see the group demerged into five independent sector-specific entities, covering aluminium, oil and gas, power, iron and steel, and parent Vedanta Limited, which will house the semiconductor and zinc businesses.
Vedanta Group had termed the report a “malicious combination of selective misinformation and baseless allegations to discredit the group.”
Viceroy Research shot back on Thursday, saying Vedanta’s one-page response ignored “every red flag raised in our report.”
“The company failed to address any of the concerns raised in our report, including the Group’s unsustainable dividends and financial structure,” it said.
It raised a series of questions related to various issues ranging from the unsustainable financial structure to brand fees and inflated asset values, which it said should be asked at Vedanta’s annual general meeting.
The whole episode of allegations and denials is reminiscent of what happened two years ago when short-seller Hindenburg Research had accused the Adani Group of brazen stock manipulation and accounting fraud. Hindenburg shut down earlier this year.
Who is Viceroy Research?
The company, founded by short-seller Fraser Perring, is based in Delaware, USA. “We believe in deep-dive due diligence and keeping the markets and its participants honest,” it says.
A key thing to note is that, like Hindenburg, Viceroy is also a short seller. Short selling is a strategy where an investor speculates that a particular stock or asset price will fall. Short sellers profit from such declines in asset prices.
In its report on the Vedanta Group, Viceroy stated up front that it had shorted the company’s debt stack.
Viceroy, in the past nine years, has taken on close to 30 companies. In 2022, for instance, it released a report on the popular caller ID app Truecaller. Viceroy had said that the European Union’s General Data Protection Regulation and similar legislation across the globe threatened Truecaller’s business, which it believed was on the brink of redundancy.
In 2018, it took on the Ebix group, alleging numerous accounting discrepancies between 2013 and 2018. In 2023, in a report titled “slumlord millionaires,” Viceroy alleged Arbor Realty Trust’s entire loan book was distressed and underlying collateral vastly overstated. In 2022, it questioned the financial situation at Britain’s social housing provider Home REIT.
German payments processor Wirecard, chipmaker AMD, Sweden’s Hexagon AB and Sorrento Therapeutics are some of the other companies that Viceroy has previously researched.