Vedanta Demerger Hits Roadblock Due to Govt, SEBI Objections

Vedanta Ltd. is a diversified natural resource group engaged in exploring, extracting and processing minerals and oil & gas. The group’s portfolio includes zinc, lead, silver, copper, aluminium, iron ore, and oil & gas, with operations spread across India, South Africa, Namibia, Ireland, Liberia and the UAE. Beyond mining, Vedanta is also active in commercial power generation, steel manufacturing, port operations in India, and glass substrate manufacturing in South Korea and Taiwan.

Presently, India contributes ~65% of total revenues, followed by Malaysia (9%), China (3%), the UAE (1%), and others (22%).

This week, the company’s stock faced volatility due to regulatory challenges around its demerger plans, even as the board declared a strong second interim dividend. This article examines the demerger setback, regulatory objections, dividend payout, and market reaction, providing investors with a clear view of the current situation.

Table of Contents

1. Demerger Setback: NCLT defers Vedanta’s restructuring plan
2. Regulatory Concerns: SEBI warning and government objections
3. Dividend Announcement: Over $1 billion distributed in FY26 so far
4. Market Reaction: Stock movement and retail participation
5. Conclusion
6. FAQs

Demerger Setback: NCLT Defers Vedanta’s Restructuring Plan

In a significant strategic move aimed at unlocking shareholder value and creating focused business verticals, Vedanta announced its demerger plan in September 2023. The company proposed to split its diversified business into five distinct, listed entities. This includes:

The rationale behind this restructuring was to allow each business to pursue independent growth strategies, attract dedicated investors, and better manage its capital allocation. The company had initially aimed to complete the demerger process within a 12-18 month timeframe.

Causes for the Delays: The path to demerger has proven to be more complex than anticipated. While the company initially set an optimistic timeline, the process has been bogged down by regulatory and procedural hurdles. Key reasons for the delay include:

• Regulatory Approvals: The demerger requires a slew of approvals from various regulatory bodies, including the Ministry of Corporate Affairs (MCA), stock exchanges (BSE and NSE), and the NCLT. Securing these approvals for such a large-scale, multi-entity transaction is a time-consuming process.
• Creditor and Shareholder Approval: The company must also get approval from its creditors and a significant majority of its shareholders. The process of holding these meetings and securing the necessary votes has contributed to the delays.
• Procedural Requirements at NCLT: The NCLT hearing is a critical final step in the legal and regulatory process. The tribunal scrutinises the entire demerger scheme to ensure it is fair to all stakeholders and complies with the Companies Act. The current deferral suggests that the NCLT may require additional information or time to review the complex scheme document.

Impact of the NCLT Deferral: The NCLT’s decision to postpone the hearing to September 17, 2025, introduces further uncertainty and extends the timeline for the demerger.

• Extended Timeline: The delay pushes the potential completion date of the demerger further into the future. The company had already extended its internal deadline to September 2025, and this latest setback makes achieving that target challenging.
• Market Perception: A prolonged and complex demerger process can sometimes be viewed negatively by the market, as it creates uncertainty and delays the potential for value unlocking. Investors who were expecting a swift completion may reassess their position.
• Strategic Implications: While the core strategic rationale for the demerger remains sound, a prolonged process could also impact the operational and financial planning of the individual business units.

Looking Ahead: Vedanta is expected to work closely with the NCLT and other regulatory bodies to address any pending issues and expedite the approval process. The September 17 hearing will be a crucial date for the company, as it will likely determine the final trajectory of the demerger plan. A positive outcome at the NCLT would pave the way for the final steps in the restructuring, while any further delays could necessitate a reassessment of the timeline and strategy.

Regulatory Concerns: SEBI Warning and Government Objections

The Central Government has lodged "serious objections" to the demerger scheme, citing several critical concerns:

• Concealment and Non-Disclosure of Liabilities: It has been alleged that the demerger plan may have concealed or failed to adequately disclose certain liabilities. This is a particularly sensitive point as it could impact the ability to recover potential dues, especially those related to oil and gas contracts. Vedanta has, in response, stated that it will issue a corporate guarantee to the Ministry of Petroleum and Natural Gas to ensure that any potential contractual liabilities are met.
• Possible Inflation of Revenues: A major accusation is the "possible inflation of revenues" within the demerger scheme. This concern strikes at the heart of the financial integrity of the plan and could lead to a deeper investigation by regulatory authorities.
• Unauthorized Alterations to the Scheme: The government also highlighted that Vedanta had made material alterations to the demerger scheme after receiving regulatory clearances, a claim that was corroborated by SEBI.

SEBI's "Serious Breach" Warning: The market regulator, SEBI, confirmed the government's claim regarding unauthorized changes. SEBI's legal representative at the NCLT hearing confirmed that Vedanta had indeed modified its demerger structure after receiving a "No Objection Certificate" (NOC). SEBI has termed this action a "serious breach" of its master circular, which outlines the procedural requirements for schemes of arrangement.

• Administrative Warning Issued: As a result of this breach, SEBI has issued an administrative warning to the company. While this type of warning does not impose financial or operational restrictions, it serves as a formal caution and is a strong indicator of regulatory displeasure.
• Lack of Due Process: SEBI's warning letter explicitly noted that such changes should have been brought to the board's attention for approval before being implemented. The regulator has also directed Vedanta to place the warning before its board and take corrective actions to ensure future compliance.

Strategic Implications and Outlook: These regulatory and government objections pose a significant overhang for Vedanta's demerger.

• Increased Regulatory Risk: The objections highlight that the demerger process is fraught with higher-than-expected regulatory risks. The NCLT will now have to carefully consider the validity of these serious allegations before proceeding.
• Uncertainty for Investors: The allegations of non-disclosure and scheme modification create significant uncertainty for investors, who were anticipating a straightforward restructuring to unlock value. This regulatory turbulence has already impacted market sentiment, with Vedanta's shares seeing a decline following the news.
• Extended Timeline: The need to address these objections will likely prolong the NCLT's review process, pushing the demerger timeline further out from the already extended September 2025 deadline.

Vedanta has stated that it has provided a detailed response to the government's representation and is cooperating with SEBI. The company maintains that the demerger is a strategic move to unlock long-term value. However, the path forward is now more complex and subject to intense scrutiny from multiple regulatory and governmental bodies.

For a deeper dive into Vedanta share price and key metrics, visit the detailed company profile of Vedanta (VEDL) to track its financial health and recent updates.

Dividend Announcement: Over $1 Billion Distributed in FY26 So Far

The board of directors of Vedanta Limited has approved a second interim dividend of ₹16 per equity share, with a face value of ₹1 per share. This translates to a total payout of approximately ₹6,256 crore. The record date for determining the eligibility of shareholders to receive this dividend has been set for August 27, 2025.

FY26 Dividends So Far: This is the second dividend declared by the company in the current fiscal year.

• First Interim Dividend: In June 2025, Vedanta's board approved a first interim dividend of ₹7 per share, resulting in a total payout of ₹2,737 crore.
• Combined Payout: With the latest announcement, the cumulative dividend for FY26 stands at ₹23 per share (₹7 + ₹16). The total cash outflow for these two dividends amounts to nearly ₹9,000 crore.

Strategic Implications of the Dividend: The decision to continue a high dividend payout policy is significant, particularly in light of the ongoing demerger and regulatory issues.

• Rewarding Shareholders: The move is a clear signal from the company's management that they are focused on rewarding shareholders. Vedanta has a history of being a high-dividend-paying stock, and this latest announcement reinforces that reputation.
• Support for Parent Company: A substantial portion of this dividend payout will go to the company's promoter, Vedanta Resources, which holds a 56.38% stake. This is a crucial element of the strategy, as these funds can be used by the parent company to service its significant debt obligations and strengthen its balance sheet. The dividend payment to Vedanta Resources is estimated to be over ₹5,000 crore
• .
• Balancing Act: The company is walking a fine line, aiming to maintain investor confidence through consistent returns while simultaneously navigating a complex and delayed demerger process. The high dividend payout can be seen as a way to keep investors on board and mitigate the negative sentiment arising from the regulatory setbacks and legal challenges.

Market Reaction and Outlook: The dividend announcement, while positive for shareholders, comes at a time of heightened scrutiny. The market's reaction has been mixed, with the stock trading in a narrow range. The dividend provides a buffer, but the long-term success of the demerger plan remains contingent on the company's ability to successfully address the "serious objections" raised by the Central Government and SEBI. The next key date for investors will be the NCLT's deferred hearing on September 17, 2025.

Also, if you're looking for insights into market reactions to energy and power sector movements, especially after regulatory concerns in the sector, check out how Reliance Power upper circuit rally is reshaping market sentiments in the energy sector.

Market Reaction: Stock Movement and Retail Participation

On August 20, the day the NCLT deferred the demerger hearing, Vedanta's share price initially reflected the market's disappointment, falling by over 3% due to the news of the setback. The deferral, coupled with the "serious objections" from the Central Government and the "serious breach" warning from SEBI, fueled investor concerns about the prolonged and complex nature of the restructuring.

However, the tide turned on August 21. Following the announcement of the second interim dividend of ₹16 per share, the stock demonstrated its resilience. Despite the lingering regulatory worries, the news of a substantial cash payout acted as a powerful counter-trigger. The stock closed 0.36% higher at ₹447.10 on the NSE. This movement highlights how a consistent and high dividend yield can act as a crucial support for a company's share price, especially during periods of regulatory uncertainty. 

Vedanta’s price movement over these two days can be seen as a battle between negative macro triggers and positive micro triggers:

• August 20 (NCLT Hearing Day): The stock fell 3%, reaching a low of ₹438.65, with heavy volumes reflecting intense selling pressure.
• August 21 (Dividend Announcement Day): The dividend news sparked renewed buying, pushing the stock back to ₹447.10, resulting in a clear V-shaped recovery pattern.

The Role of Retail Investors: Vedanta's strong performance in distributing wealth is particularly significant given its large and active retail shareholder base. As of the end of June 2025, Vedanta had over 20.3 lakh retail shareholders. For these small investors, dividends are a direct and tangible form of return on their investment, often outweighing concerns about long-term strategic plans like a demerger.

Watch the latest insights on Vedanta's share price slip as the NCLT hearing is deferred. In this NDTV Profit provides a comprehensive analysis of Vedanta's current stock performance and financial outlook.

Conclusion

Vedanta finds itself at a crossroads, balancing regulatory challenges on one hand and sustaining investor confidence through high dividends on the other.

Key Points

• Regulatory Uncertainty: The Central Government’s "serious objections" and SEBI's "administrative warning" confirm that the demerger is not a straightforward process. These regulatory risks remain a significant and ongoing overhang that could lead to further delays or modifications to the plan.
• Compliance Risks: SEBI’s warning for "serious breach" highlights potential corporate governance and compliance issues. This signals a higher level of scrutiny for the company going forward and could impact investor confidence in the long run.
• Aggressive Dividend Policy: Despite these challenges, Vedanta continues its aggressive dividend payout strategy. With over $1 billion distributed in FY26 so far, the company is prioritising shareholder returns and using dividends as a tool to support its stock price and help its parent company, Vedanta Resources, manage its debt.
• NCLT Hearing: The September hearing will be a critical milestone for its demerger ambitions, but until then, the company’s robust dividend track record provides near-term support to shareholder sentiment.

FAQs

Q1: Why was Vedanta's demerger hearing postponed by the NCLT?
The National Company Law Tribunal (NCLT) deferred the hearing on Vedanta’s demerger plan to September 17, 2025, due to "serious objections" raised by the Central Government. The government cited concerns about potential non-disclosure of liabilities and possible revenue inflation within the restructuring scheme.

Q2: What is the "serious breach" SEBI has warned Vedanta about?
The Securities and Exchange Board of India (SEBI) issued an administrative warning to Vedanta, terming it a "serious breach" of its master circular. This was because Vedanta modified its demerger structure after receiving a "No Objection Certificate" (NOC) from the regulator, without bringing the changes to SEBI's attention for approval.

Q3: How have the regulatory issues impacted Vedanta's stock price?
The stock price has shown a mixed reaction. On August 20, 2025, the share price fell by over 2% due to the NCLT deferral and regulatory news. However, the stock recovered on August 21, closing 0.4% higher after the company announced its second interim dividend. This shows a tug-of-war between regulatory risk and the company's commitment to shareholder returns.

Q4: How much dividend has Vedanta paid out in FY26 so far?
As of late August 2025, Vedanta has announced two interim dividends for the financial year 2026. The first dividend was ₹7 per share, followed by a second of ₹16 per share, bringing the total to ₹23 per share. This amounts to a total payout of approximately ₹9,000 crore, or over $1 billion.

Q5: What does the large retail shareholder base mean for Vedanta?
Vedanta has over 20.3 lakh retail shareholders, who hold a significant 11.6% stake in the company. The company’s aggressive dividend policy is particularly important for these small investors, as it serves as a crucial wealth distribution mechanism and helps maintain their confidence during periods of strategic uncertainty.