The Curious Case Of Confused Names: There Was Something Murky About Vedanta's Foxconn Announcement

What’s in a name? Tens of thousands of crores of rupees of investor wealth, it turns out. Especially if you kinda, sorta, mighta let the investing public believe that some actions – of the kind which might see a quantum jump in the value of the stock over time –  were done by the listed entity – then under considerable debt and liquidity pressure – whereas they actually were those of an unlisted private entity owned by the same promoters and with a confusingly similar name.

Confused? So were the investors of Vedanta Limited – the India-listed entity belonging to the London-based Vedanta Group — who were led to believe, thanks to some critical omissions in media statements issued by the Vedanta Group, as well as statements made by Vedanta Group Chairman Anil Agarwal and the top management of Vedanta Limited in conference calls with investors and analysts, that the diversified core industry player with interests in aluminum, copper, oil & gas, pig iron, iron ore and power, among others, was diversifying into the strategic and highly lucrative business of semiconductor manufacture in India, under the government’s Rs 76,000 crore production-linked-incentive (PLI) for semiconductor manufacture.

The government had come up with the PLI scheme to try and reduce India’s dependence on semiconductor imports, which had become both an economic and strategic imperative after the stand-off between US and China led to sanctions and massive supply chain disruptions, over and above those induced by China’s zero-Covid policy, which had led to severe lockdowns, disrupting chip manufacture in China.

Lacuna in the claim

This is why the market reacted so enthusiastically to Vedanta Group Chairman Anil Agarwal’s statement that India’s transformation from “chip taker to a chip maker has officially begun”, while announcing the selection of Gujarat as the location for Vedanta’s silicon wafer fabrication facility.

Everyone assumed that the silicon wafer fab unit would be a diversification of Vedanta Limited. The potential diversification into the lucrative semiconductor business, with a substantial incentive from the government thrown in, was seen as a panacea for Vedanta Limited’s troubles, relating to its debt mountain and concerns over its ability to meet liabilities of over $3 billion. The company’s share price gained over 10 percent in a matter of days, only to come crashing down after stock exchanges called for clarifications, which made it clear that the potential upsides from the semiconductor business will be flowing to the holding company overseas, and not the India-listed entity, Vedanta Limited.

This was no ‘accidental’ oversight by the company, nor unfounded belief on the part of investors. There appears to have been a clear attempt to confuse investors into believing that the “Vedanta” name associated with the wafer fab foray belonged to Vedanta Limited.

How it started

The story begins soon after the government launched its massive Rs 76,000 crore PLI scheme for semiconductor and display manufacture, On February 14, 2022 – less than two months after the initial PLI scheme was announced by the government, a press release put out by Vedanta Limited announced the signing of an MOU with Taiwanese semiconductor manufacturer Foxconn to form a joint venture company that will manufacture semiconductors in India. The press release implies that MOU was signed to tap the opportunity of taking advantage of the government’s  PLI scheme.

The press release did not clearly state which entity had signed the MoU with Foxconn – Vedanta Limited (the Indian listed entity) or Vedanta Resources (the London based promoter of Vedanta Limited). The release mentions “Vedanta Group” which could refer to either entity.

Excerpts from Press Release about Vedanta Group:

 

But since this press release was uploaded on the official website of Indian listed entity (Vedanta Limited), stakeholders believed that it will be Vedanta limited which will be foraying into the semiconductor business. For a commodity player to enter into the niche business of semiconductor, was definitely a big deal for investors. Investors cheered the company’s move as the stock rose by 3% on day after the announcement.
The event was widely covered by media (">Zee Business, News18, Business Standard).

Source : Vedanta Limited official website - Press Release

But something unusual happened when it comes to the regulatory side. This critical development, one, moreover, which was announced in a glare of media publicity and was widely covered in the media, was not at all disclosed to the exchanges.

How did Vedanta respond?

But why? The exchanges wanted to know too. BSE sought clarification from Vedanta limited on the news of MoU with Foxconn

To which Vedanta replied that the business of semiconductor manufacture was not under the listed entity but will be taken up by the holding company of Vedanta Limited. 

This is what Vedanta Limited’s response to the BSE query said:

What the company did not explain was why, if the business of semiconductor manufacture was not to be  undertaken by the listed entity, was the press release of MoU with Foxconn released from the official website of Vedanta limited (Indian listed entity).

It is not unusual for the public narrative in the spotlight to diverge considerably from the facts, since that is driven more by the perception created by the mass media coverage. In this case, Vedanta Limited’s  clarification went unnoticed by the media and investor community.

The plot twist

This is where the story gets more interesting. Despite having officially clarified to BSE on February 16, 2022, that Vedanta Limited, the listed entity, had nothing to do with the semiconductor foray, top Vedanta officials failed  to not only counter the popular perception that it was the listed entity that was getting into semiconductors, but actively encouraged the same.
Take a look at the following:

Earnings call 

1. Q4FY22 Concall held on 28th April 2022
   Group CEO Sunil Duggal in his opening remarks says the following about the semiconductor business:
   >“For the Atmanirbhar Bharat, India needs to reduce electronics imports. Semiconductor, which is a critical raw material for electronics manufacturing has significant demand-supply gap. We are partneringwith the largest global player, Foxconn, to start semiconductor production in 2 years’ time. This has a very large potential for shareholder value creation."
   
   This is giving investors a impression that this business will not only be under listed entity but will also has “very large potential for shareholder value creation”
2. Q1FY23 Earnings Concall held on 28th July 2022
   
   Group CEO - Sunil Duggal, while answering a query by Systematix did not clarify the fact if the chip business is under the listed entity. In fact, he goes on further to describe their future plans:

It gets even more interesting. At one point, a senior company official actually “confirms” that it is the listed entity which will be in the semiconductor foray

 4.  Vedanta Resources Earnings Call of H2FY22 held on 6th June-22

“This is for sure” says former Group CFO of Vedanta Group Ajay Goel on being questioned whether semiconductor business will be under listed entity Vedanta Limited

For good measure, Vedanta Group Chairman Anil Agarwal does his bit to bolster this.

Annual General Meeting - Chairman’s Speech on 10th Aug-22

Anil Agarwal in his AGM speech says: “We are also making a foray into the strategic area of manufacturing semiconductor fab and display fab. Not only are semiconductors in short supply globally, but India is also 100% import dependent. The domestic consumption of semiconductors is expected to cross $80 billion by 2026 and may touch $110 billion by 2030.

Vedanta has already signed an MoU with Foxconn, one of the world’s largest electronics manufacturers, to set up an integrated semiconductor manufacturing facility in India. I truly hope this is only the beginning of the creation of a Silicon Valley in India with hundreds of enterprises and hundreds of thousands of talent Indians producing value for the world”

The video of the same can be watched ">here from timestamp of 9:00 minutes. He reiterates this in subsequent media interactions as well.

The media interactions

Chairman’s interview on CNBC TV-18 on 14th Sept-22, the day Vedanta signed MoU with Gujarat Govt for setting up a semiconductor plant in Gujarat.

&t=269s">Watch here from 9:00 Mins he reiterated again on being questioned twice that semiconductor business will come under listed entity and will be funded by listed Vedanta Limited

Annual Report

While Vedanta continued to draw the wool over investors’ eyes through multiple, deliberately confusing communications, the company is careful to safeguard itself in legal terms.

For example, Vedanta Limited’s Annual Report for FY22 mentions just a one-liner about semiconductors – regardless of what was being said in the Chairman's AGM speech!

Here’s the relevant portion:

 

The annual report merely mentions the fact about MoU with Foxconn without clarifying which entity is involved –  Vedanta Resources or Vedanta Limited?

This confusion between Vedanta Resources and Vedanta limited was actually done away with at one point. The press release issued by Vedanta Limited after the signing of an MoU with the Gujarat Government on September 14, 2022, went so far as to actually mention Vedanta Limited.

Though the company deleted that press release which mentioned paragraph “About Vedanta Limited” and uploaded an updated one which merely mentions Vedanta without clarifying whether its Vedanta Limited or Vedanta Group
Here is the screenshot of the excerpts from earlier version of press release dated 14th Sept-22 which was deleted later

Once again, stock exchanges sought clarification from Vedanta Limited on 15th Sept-22

To which Vedanta replied again that “proposed manufacturing of semiconductors is not under Vedanta Limited and will be undertaken by ultimate holding of co, Volcan Investments Limited”

If you see their historical share price movement, Vedanta share rose by around 12% on the news of MoU signing with Gujarat Govt and fell by around 10% post clarification. If they had explicitly clarified in their press,  investors would have been saved from this kind of volatility – and consequent losses.

Why did the price fall this time and not after the earlier official clarification to the exchanges? Because this time, the clarification sent to the exchanges had been widely covered by the media –  and the penny finally dropped.

Post this confusion when the earningscall of Q2 FY23 was held on 28th Oct-22,> CEO Sunil Duggal goes so far as to deny commenting on the semiconductor business!

Sunil Duggal, Group CEO reiterated same that semiconductor business is not under listed entity in Q3FY23 Earnings call held on 27th Jan-23

Clearly, the  Vedanta Group took good advantage of the confusion between the Group and the listed entity to try and shore up the image of the listed entity – and boosting its share price in the process. That this was deliberate is borne out by the fact that despite officially clarifying to the exchanges as far back as February, 2022 that the listed entity had nothing to do with the semiconductor foray, the listed entity continued to put out media statements which fail to explicitly clear the confusion. This was also buttressed by statements of senior management on multiple occasions, even when asked specific questions.

Meanwhile, multiple media reports hint at a rough ride for Vedanta in building the semiconductor business!

1.Billionaire Agarwal’s Chip Dream at Risk as Hurdles Mount - Bloomberg

2.Vedanta-Foxconn's chip making ambitions have hit a speed bump - Economic Times

3.The Vedanta Semiconductor Plant Has Gone with the Wind

The Core.in reached out to Vedanta with a list of queries, and will update the report when they respond.

Sudarshan Bhandari and Nimish Maheshwari are chartered accountants and co-founders of Beat The Street, a financial markets platform which extensively covers corporate governance issues and red-flags through their YouTube channel and Twitter handle.