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Shares of Vedanta Ltd tumbled as much as 8 per cent in Wednesday’s intra-day trade, hitting a low of Rs 421 on the BSE, after US-based short-seller Viceroy Research released a critical report on the company’s parent, Vedanta Resources Ltd (VRL). The stock later pared some losses to trade around Rs 439, even as the BSE Sensex remained flat, up 0.06 per cent at 83,761 around 1 PM.

The sharp fall followed Viceroy’s disclosure that it has shorted the debt stack of Vedanta Resources, citing what it called a “financially unsustainable” and “operationally compromised” corporate structure.

In its note, Viceroy alleged that VRL is entirely dependent on cash flows from Vedanta Ltd, despite having no substantial operations of its own. It likened the parent to a “parasite” and warned that the proposed demerger of the group’s businesses would only “spread the insolvency across multiple, weaker entities.”

“The group is fundamentally broken and headed for a disorderly collapse,” the report said, calling VRL a “financial zombie kept alive by transfusions of cash from its subsidiary.”

1) Viceroy Research outlined several concerns in its findings, including: Bait-and-switch funding: Vedanta allegedly proposes capital-heavy projects to raise funds, which are then redirected to service VRL’s debt.

2) Irreconcilable interest expenses: Interest costs reportedly exceed what’s reflected in public filings, despite repayments and restructuring.

3) Overstated asset values: Several subsidiaries are claimed to be overvalued and burdened with cross-collateralised debt.

4) Capital expenditure manipulation: Capex is allegedly capitalised to artificially boost reported profits.

5) Undisclosed liabilities: Billions of dollars in disputed expenses are said to be kept off the balance sheet.

6) Governance gaps: The report cites poor management oversight and questionable auditor appointments.

7) Viceroy further claimed that several inconsistencies it identified could amount to fraud.

In response, Vedanta Group dismissed the claims as “a malicious combination of selective misinformation and baseless allegations”, accusing the research firm of attempting to manipulate market sentiment for its own gain.

“The report was issued without contacting the company and is aimed at discrediting us ahead of key corporate developments,” Vedanta said. “It sensationalises publicly available data, and the authors have added disclaimers to avoid accountability.”

The company urged stakeholders to avoid speculation and focus on its ongoing growth initiatives.

The controversy arrives just as Vedanta prepares to demerge its core businesses into multiple listed entities, in an attempt to unlock value and streamline operations. However, analysts say the group’s high debt load and complex funding structure have long been pain points for investors.

Despite the recovery from day’s low, Vedanta shares remain under pressure amid concerns about governance and group-level liquidity risks.

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