Mumbai: Vedanta Resources, the London-based parent of Vedanta Ltd, refunded a part of the brand fee paid by its India-listed subsidiary in FY24 amid scrutiny from the Directorate of Enforcement, which at the time was investigating the company’s brand fee payments, US-based short-seller Viceroy Research alleged on Wednesday.

Vedanta Resources refunded ₹1,030 crore ($123 million) to Vedanta Ltd in 2023 without intimating its auditors, the short-seller alleged. The transaction can be seen in the FY24 annual report of the company.

The short-seller did not clarify which legal provisions, if any, were violated by Vedanta. However, the ED investigation into the company was still ongoing, the short-seller said, citing unnamed former employees, advisors and counter-parties of the Vedanta Group. “Stakeholders should not mistake the absence of public updates for resolution; the risk is unresolved, ongoing, and material.”

In an emailed response, a Vedanta spokesperson said, “The said short sellers have repeatedly circulated mala fide and misleading ‘reports’ replete with inaccuracies. The brand fee paid by Vedanta to Vedanta Resources Limited (VRL) for each financial year is determined based on the approved business plan, with a true-up mechanism implemented in the subsequent cycle to align with actual performance.”

For FY24, due to macroeconomic headwinds, the actual turnover did not meet the business plan. In line with prudent financial practices, Vedanta proactively requested VRL to refund the excess brand fee amount in advance, rather than the routine adjustment cycle. Additionally, any notional opportunity cost of capital was equitably addressed through a discount extended by VRL on the subsequent brand fee,” the spokesperson said.

‘Routine request’

Regarding the ED notice during Q1 FY24, the spokesperson said, “It was a routine request. The matter did not warrant disclosure under applicable regulations, and all required information has been duly furnished. There are no outstanding queries in this regard.”

This is the latest in Viceroy’s series of allegations against Vedanta Group. The short-seller has accused the London-based parent of draining cash from Vedanta Ltd. through high dividends and brand fee payments, among other things. Vedanta Group has denied all allegations. 

Earlier, former Chief Justice of India DY Chandrachud had provided a legal opinion to Vedanta on the Viceroy reports in a professional capacity. He said that the first and the most expansive Viceroy report on Vedanta lacked credibility, and the researchers behind the report had “dubious credentials”. He highlighted Viceroy’s interest in profiteering from a possible rout in Vedanta Resources’ commercial papers as a result of the short-seller’s reports. He also said he suspected the timing of the report, coming just as India-listed Vedanta Ltd is headed for a demerger.

Viceroy subsequently disputed the former chief justice’s legal opinion, saying that it did not answer any question raised by it with regards to dividend payments and alleged financial mismanagement at the mining and minerals conglomerate.

The Vedanta Ltd stock is down 4.7% since its close on 8 July, a day before Viceroy published its first report on the Vedanta Group.

Vedanta’s unique brand fee structure

Vedanta Ltd and its subsidiaries pay between 0.75% and 3% of their revenues as brand and strategic services fee to Vedanta Resources, as per a Vedanta Resources presentation. The fee is paid at the beginning of a financial year by estimating the revenue during the year. At the end of the year, any excess fee paid is returned.

The short-seller has called this arrangement a rolling credit facility from Vedanta Ltd to Vedanta Resources with “zero interest, zero collateral, and zero transparency”.

While the structure is unique compared to most multinational companies and conglomerates, where brand fees are paid at the end of the year, Viceroy alleged anomalies. Whenever Vedanta Resources faced a liquidity crunch, it triggered ad hoc remittances from Vedanta Ltd as brand fees, the short-seller said. These ad hoc payments were what originally drew the attention of the ED, the short-seller said.

In FY25, group companies paid a consolidated brand fee of $361 million to Vedanta Resources, as per Viceroy’s calculation. The number was $339 million the previous year. In all, the group companies paid $1.2 billion in brand fees between FY22 and FY25, which was equivalent to 12% of Vedanta Ltd’s aggregate net profit during this period.

For FY26, Vedanta Ltd has already remitted $400 million in brand fees to Vedanta Resources in April, as per Viceroy. The company is yet to disclose this figure in its financial statements. India-listed Vedanta Ltd will disclose its April-June quarter earnings on Thursday.

The brand fees are a core income stream for Vedanta Resources, which has no operating businesses and relies on income from its subsidiaries. The fees help the London-based company service its $4.9 billion net debt, which includes $835 million a year in interest payments.

The brand fee structure has been a concern for Vedanta Resources’ offshore lenders, Viceroy said. “It was clear to them that there was no legal or commercial justification for the brand fees and that they were very vulnerable to regulatory intervention.”