Shares of Vedanta Resources soared by over 20 per cent in London as the resources giant dramatically cut its capital expenditure for the years 2015 and 2016, in the wake of lower commodity prices.
Ahead of a capital markets day for investors in London on Friday, the company said capital expenditure for the year 2015 would fall to $1.5 billion from $1.9 billion, while it would fall to $1 billion from $2 billion for 2016.
Gearing ratioThis would enable it to cut its so-called “gearing ratio” – the ratio of its net debt to its total capital – to around 25 per cent from over 30 per cent over the next three to five years, and to continue to maintaining a “progressive” dividend policy. Shares of Vedanta Resources first fell by over 4 per cent in morning trade and then rose – up 5.7 per cent – in the early afternoon trading. In the last month, its share price has fallen by 27 per cent, amid ongoing concerns about low oil prices, as well as new concerns about the impact of the tax demand placed on Cairn India.
CEO Tom Albanese reiterated pledges to simplify the organisational structure. “Simplification will be a complex exercise,” he said, requiring cooperation with shareholders, stakeholders, regulators and government authorities at national and state level.
He said the company remained well placed to manage volatility in the commodity markets with a diversified base of assets, low production costs and fast growing markets.
The company said that this lowering of capital expenditure would hit its volume growth for its oil and gas business – from 5 to 7 per cent in the last year to 1 to 3 per cent. “Yes it is dampening,” said Mayank Ashar, CEO of Cairn India, during the capital markets day.
He said they had based the previous capital expenditure profile on a 2014 oil price of $80 to $110 a barrel rather than the $50 current reality. “We looked hard at capital and deferred projects that were no longer giving a good return in a fifty dollar world.”