Vedanta shares fall following purchase of Anglo American stake

New Delhi: Shares of miner Vedanta Ltd declined by 20 percent on February 1, charting its lowest single-day fall since March 2011, on concerns of corporate governance after it invested in African miner Anglo American Plc. As part of its cash management activities, Cairn India Holdings Ltd (CIHL), a fully-owned foreign subsidiary of Vedanta, paid Rs 1,431 crore to buy a stake in Anglo American from its parent Volcan Investments Limited, said an earnings release. The ownership of the underlying shares, along with the associated voting interest, remains with Volcan.

Various brokerages have downgraded the stock and cut its target price. ICICI Securities downgraded the stock to sell from reduce and lowered its target price to Rs 145 from Rs 1,475 a share. Goldman Sachs downgraded to neutral from buy and cut its target price to Rs 203 from Rs 230 a share. CLSA rated sell and reduced its target price to Rs 170 from Rs 250 a share, as IDFC Securities downgraded to neutral from outperform and lowered its target price to Rs 213 from Rs 244 a share.

Biggest stock fall since 2011

The stock fell 19.82 percent, its biggest industry fall since March 2011, hitting a low of Rs 158.35. At 9.52am on February 1, the scrip was trading at Rs 163.15 on BSE, down 17.4 percent from its last close. The country's benchmark Sensex rose 0.38 percent to 36395.38 points. Hindustan Zinc Ltd, Vedanta's group company, fell 3.6 percent.

"Related-party transaction will de-rate the stock. Although this transaction appears at an arm's length, the counterparty risk is high because parent drives its value from Vedanta itself and is highly leveraged. Investors are now concerned about the future allocation of capital, especially from foreign subsidiaries," Motilal Oswal Securities said in a January 31 report.