Anil Agarwal-led Sesa Sterlite, which was renamed as Vedanta recently, has been hit hard by falling crude prices as it booked nearly Rs 200 billion ($3 billion) as “goodwill impairment charges” related to its oil and gas business. The write-down resulted in the company posting the biggest quarterly loss in India's corporate history. Vedanta reported a consolidated net loss of Rs 192.28 billion (about $3 billion) for the January-March quarter as against a profit of Rs 16.21 billion in the corresponding quarter last year.
An impairment refers to an erosion in the value of an asset, including an intangible asset like goodwill. This means Cairn India, which Vedanta acquired for $9.1 billion in 2011, is now valued at around $6 billion as the company reported exceptional items of Rs 199.56 billion for the quarter ended March 31, 2015, Vedanta said in its earnings report. Vedanta, the Indian-listed subsidiary of London-listed Vedanta Resources Plc controlled by Anil Agarwal, owns 58.9% in Cairn India.
It may be recalled that Tata Steel in May 2013 had announced a goodwill impairment charge of $1.6 billion on account of loss of value at its European steel business under Corus and other overseas assets due to a slump in demand in overseas markets, the biggest write-off then.
“This is a one time non-cash charge. The impairment will be reflected as a write-down in goodwill and will have no bearing on operational cash flows in coming quarters,” Vedanta Resources CEO Tom Albanese said. The companies that brought assets at higher valuations at the peak of the economy are now forced to write down the value of their investments in such assets. BP Plc, in last two years, has written down the value of its 30% stake in the KG basin block acquired from RIL for $7.2 billion by over $1 billion. State-owned ONGC also had to write down the value of its investments in Imperial Energy by $500 million that it acquired for $2.1 billion in 2008.
Globally, natural resource firms and oil companies like BP and Shell and mining giants like Rio Tinto, Glencore and BHP have taken impairments write-downs on their balance sheets in the last few quarters, totalling over $30 billion.