In a
blistering new report, activist short-seller Viceroy Research has accused mining and metals conglomerate Vedanta Resources Ltd (VRL) and its listed Indian arm, Vedanta Ltd (VEDL), of running what it calls a ‘Ponzi-like structure’ sustained by relentless cash extraction, undisclosed liabilities and financial engineering. The report warns that the group’s entire capital framework is teetering on the edge of collapse, citing a staggering US$5.6bn (billion) free cash-flow shortfall at VEDL, hidden loans, inflated asset values and mounting leverage that could trigger a full-blown solvency crisis. The findings, if true, raise serious concerns about the financial stability of one of India’s most prominent industrial empires—controlled by billionaire Anil Agarwal—and its ripple effects on investors, creditors and regulators alike.
Vedanta group is controlled by business baron Mr Agarwal and his family and its operations span across India, UK, Australia, Zambia and other countries. VEDL is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Viceroy Research was founded by British short-seller Fraser John Perring, together with Australian partners Aiden Lau and Gabriel Bernarde, in 2016. It had earlier released an investigative report on German payments giant Wirecard which, ultimately, led to the collapse of the company.
Viceroy has alleged that VRL’s “entire group structure is financially unsustainable, operationally compromised, and poses a severe, under-appreciated risk to creditors.” It further asserts that VRL essentially survives by extracting cash from VEDL while having no significant operations of its own.
According to Viceroy, VRL’s capital structure is highly leveraged and “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.”
At the core of Viceroy’s thesis is a structural mismatch: VRL’s gross interest-bearing liabilities of about US$4.9bn are collateralised almost entirely by its 56% stake in VEDL. This leaves VRL’s creditors with security that is itself being eroded by the same upstreaming mechanisms designed to service the parent’s debt stack.
Viceroy estimates that between FY21-22 and FY24-25, VEDL’s free cash-flow shortfall against declared dividends exceeded US$5.6bn, forcing the company to back dividends with incremental borrowing and aggressive working capital release strategies, both of which appear exhausted. The report claims this creates a destructive feedback loop: higher payouts to prop up VRL’s cash-flow deplete VEDL’s balance sheet, which in turn undermines the value of VRL’s only real collateral.
Viceroy has termed this arrangement as a ‘Ponzi scheme’ that, according to the firm, has ‘pushed the entire group to the brink of insolvency, propped up only by a continuous cycle of new debt, accounting tricks, and the deferral of massive, undisclosed liabilities’.
In a critical financial anomaly, Viceroy argues that VRL’s effective interest expense for FY24-25 implies a weighted average cost of debt of nearly 16%, materially higher than its disclosed bond coupons and term loan rates of 9% to 11%. The research firm posits three possible explanations: undisclosed off-balance-sheet liabilities, large intra-period revolver loans repaid before reporting dates, or misrepresented borrowing costs.
A similar gap is highlighted at the VEDL level: actual interest expense for FY24-25 was US$368mn (million) higher than would be implied by its reported weighted average borrowing rate of 9.08%. Viceroy argues this suggests significant intra-period liquidity stress and potential hidden short-term debt instruments.
To address its structural liquidity bind, the Vedanta group is pursuing a complex demerger, announced in 2023, to split its portfolio into multiple listed verticals. Viceroy contends this approach merely distributes unsustainable debt across weaker stand-alone entities with no clear roadmap for resolving the underlying upstream cash dependence that props up VRL.
Beyond dividends, the report scrutinises how VRL extracts value via intercompany brand fees and so-called ‘strategic services’. Viceroy states that these brand fees, totalling US$338mn in FY23-24 alone, function as rolling prepayments that lack clear commercial justification. Notably, subsidiaries such as Hindustan Zinc Ltd (HZL) reportedly pay significant royalties, despite marketing their products under separate brands.
Former insiders cited in the report describe the fees as ‘strategic services’ that amount to compensating promoter time rather than delivering tangible value to operating subsidiaries. Viceroy contends this arrangement may breach India’s transfer pricing norms, the General Anti-Avoidance Rules (GAAR) and base erosion and profit shifting (BEPS) frameworks.
Viceroy raises a question about why a part of this loan was written off by VEDL.
Viceroy has also provided evidence of inflated asset values of VEDL’s numerous large operating subsidiaries and, according to Viceroy, the debt on the books of these subsidiaries massively exceeds the true value of their assets and is cross collateralised across the group and, therefore, potentially threatens the group’s solvency in the event of default.
Moreover, Viceroy’s forensic subsidiary analysis paints a grim picture of multiple core assets:
• HZL could trigger a put/call option clause with the government of India (GoI) due to alleged non-compliance with agreed capacity expansions. If exercised, VRL could face a forced divestment at a deep discount or an obligation to repurchase the GoI’s stake at a premium, potentially implying a multi-billion-dollar liquidity shock.
• Fujairah Gold, the group’s Dubai-based unit, is flagged for irregular feedstock sourcing that Viceroy claims may facilitate illicit gold exports, an allegation that, if true, could have significant regulatory ramifications.
• Skorpion Mine in Namibia has remained shut since 2020 due to a pit wall collapse and is unlikely to reopen profitably, while the linked refinery has no viable feedstock. Viceroy claims recent impairment reversals at Black Mountain Mining, also in Africa, were engineered to bolster the balance sheet ahead of refinancing.
• Talwandi Sabo Power Ltd (TSPL), a captive power plant, allegedly conceals about US$350mn in liabilities and faces ongoing disputes with its sole off-taker, the Punjab state utility, which is withholding payments to TSPL.
• Konkola Copper Mines (KCM) is described as a stranded asset with over US$1bn in unfunded commitments, kept afloat on the books at what the report calls a 'fictitious valuation.'
Viceroy argues that the Vedanta group’s governance structure systematically avoids scrutiny through selective auditor appointments. VRL’s UK auditor, MHA MacIntyre Hudson, was previously sanctioned for quality control failures. VEDL’s auditor, an EY affiliate, faced regulatory bans due to its role in India’s Infrastructure Leasing & Financial Services Ltd (IL&FS) fraud. Subsidiaries like ESL Steel are audited by firms that have been penalised by Indian regulators for misconduct.
Combined with an accelerating exodus of senior management, including chief executive officers (CEOs), chief financial officers (CFOs) and key business heads, since the 2023 demerger plan announcement, the governance framework raises red flags for investors and creditors alike.
Viceroy argues that the best outcome for VRL’s creditors may be a forced restructuring that ring-fences VEDL’s operational assets and installs an unconflicted board. Such measures would shield VEDL’s cash flow from upstream extraction, preserving collateral value.
Moneylife sent a detailed questionnaire to the group, requesting their official response along with supporting documents related to disputed debt figures, intra-group cash movements, compliance with transfer pricing norms and governance controls.
While Moneylife did not recieve response to specific queries from Vedanta, in a regulatory filing, the company says the Viceroy research group report is 'a malicious combination of selective misinformation and baseless allegations to discredit the group' and has been issued 'without making any attempt to contact us with the sole objective creating false propaganda'.
"The timing of the report is suspect and could be to undermine the forthcoming corporate initiatives. Our stakeholders are discerning enough to understand such tactics. In fact, to avoid any responsibility, the authors of the report have added various disclaimers that the report has been prepared for educational purposes only and expresses their opinions and are not statements of fact (page 7)," Vedanta stated.
Adani was saved by Modi but how long can such coverups go on, one wonders.
One may like or dislike the Ambani empire but at least after the Anil Ambani debacle there have been no skeletons tumbling out.