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Vedanta’s tussle with Kyma Capital puts spotlight on Cairn India Holdings’ alleged misdoings

By Bijou George and Luca Casiraghi

A recent tussle between a hedge fund and Indian mining giant Vedanta Ltd. is spotlighting growing scrutiny of a unit based in the British crown dependency of Jersey.

That entity is Cairn India Holdings Ltd. (CIHL). Vedanta’s shareholder, hedge fund Kyma Capital, said earlier this month that a $956 million loan from Vedanta Ltd. to its holding company Vedanta Resources Ltd. — channeled through CIHL — represented an “improper transfer of value.”

Since then, Vedanta Resources’s dollar bonds have declined. The company’s $670 million of notes due June 2021 slumped as much as 7.7 cents Thursday. The drop came after people familiar with the matter said the firm had begun sounding out debt holders about the possibility of extending maturities on some of its dollar securities to reduce refinancing pressures. The Vedanta group denies talks with any bondholder for an extension.


What is Cairn India Holdings Ltd.

It’s an offshore subsidiary in Jersey, an island near the coast of France in the English Channel. Established in 2006, CIHL was a holding vehicle owned by Cairn India Ltd., when the firm was held by Cairn Energy Plc, before Vedanta Resources acquired a controlling stake in 2011. Later, London-based Vedanta Resources merged Cairn with its India unit Vedanta Ltd. in 2017. It’s now a unit of Vedanta Ltd., and owns a stake in its key oil field in the northern Indian state of Rajasthan.

CIHL is audited by an Indian firm based in a suburban business district of India’s capital region: VD & Co. The audit firm, which has 20 people and was founded in 2010, lists two partners, according to its website.

CIHL serves an important role in financing tycoon Anil Agarwal’s complex holding structure. CIHL has acted as a bridge between the cash-spinning India assets, including Mumbai-listed Vedanta Ltd., and debt-heavy London-based holding vehicles.

Why is scrutiny of CIHL rising now

Earlier this month, London-based Kyma Capital said that Vedanta Ltd. siphoned off funds belonging to stakeholders through the CIHL facility.

Kyma on Nov. 11 also flagged corporate governance concerns about the resignation of an independent director from Vedanta Ltd., and a change in auditors of CIHL from Ernst & Young LLP to the lesser-known Indian accounting firm. VD & Co. Managing Partner Vaibhaw Kedia declined to comment.

Separately, EY stepped down as auditor of Vedanta Resources earlier this year and confirmed “there are no circumstances connected with its resignation which it considers should be brought to the attention of the members or creditors of the company,” Vedanta Resources said in an exchange filing Nov. 20.

A Vedanta spokesman declined to comment on CIHL and the Kyma allegations. The unsecured loans were extended mainly as cash management activities for better rates, Vedanta Chief Financial Officer Arun Kumar said in a call with analysts Nov. 6.

CIHL’s financial position

CIHL held cash and short-term investments worth about $780 million as of March 2020, more than half of which came from the unwinding of a transaction in 2019 that drew shareholder ire and a slew of analyst downgrades.

Agarwal used CIHL as a vehicle to house his economic interest in Anglo American Plc, originally bought by one of his London holding vehicles named Volcan Investments Ltd. The transaction was unwound in July 2019, earlier than scheduled.

CIHL received $397.7 million in the financial year ended March 2020 from the unwinding, according to financial disclosures. Vedanta said the encashment reflects its “disciplined approach to treasury management and capital allocation.”

What’s the broader backdrop

The tussle between Kyma Capital and Vedanta comes at a key time for billionaire Agarwal.

Vedanta Ltd. holding companies Vedanta Resources Ltd. and Volcan Investments Cyprus Ltd. must repay a combined $1.17 billion next year. That’s the most since 2017, according to data compiled by Bloomberg.

Twin Star Holdings Ltd., the Mauritius-based unit of Vedanta Resources that received loans from CIHL, has $414 million of bank loans coming due in December and $112.5 million maturing in February 2021, according to a bond prospectus published in August.

Vedanta Resources in August said it was in breach of a financial covenant as on March 31 for which it secured waivers, but added it could need more relaxations in coming months.

What else

CIHL has also been used as a vehicle for acquisitions outside its core commodity business in the past. In December 2017, CIHL spent $158 million to acquire the debt and controlling interest in AvanStrate Inc, a Japanese LCD glass substrate maker.

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