Home / Companies / News /  Banks sound out Vedanta to fund Gujarat chip plant

MUMBAI : Multiple domestic banks have sounded out Vedanta Group to express interest in funding the conglomerate’s proposed 1.54-trillion semiconductor plant in Gujarat, hoping to join an extensive project finance exercise.

The company has not held any formal conversation with banks so far and has sought time until a detailed project report is prepared, two bankers aware of the development said. On 13 September, Vedanta announced plans to build a semiconductor fabrication unit, a display fabrication unit, and a semiconductor assembling and testing unit in Gujarat. Vedanta will hold 60% of the equity in the business venture, with Taiwanese electronics manufacturer Foxconn holding the rest.

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“We have checked with the company and have been told the management will prepare a detailed report and let us know in due course. This is a massive funding opportunity for us if it fructifies," said one of the two bankers, both of whom declined to be identified.

Although lucrative, the project finance opportunity might be bigger than the appetite of domestic banks. The first banker said that even if his bank is selected, the entire debt requirement of the project cannot be fulfilled by local banks alone, and there will probably be a large chunk of external commercial borrowings (ECBs) involved.

“Even if the project has a debt-to-equity ratio of 60:40, the total debt requirement would be about 90,000 crore," the banker said.

Reuters reported on 30 April that Vedanta is in talks with banks to raise debt of $2.5-3 billion for its semiconductor and display manufacturing plans, citing a senior company official.

The second banker said the final requirement would also depend on how much equity the promoters bring into the project. He said banks currently do not have much idea beyond the details available from last week’s public announcement.

“Once there is some more development on the ground, we will be able to ascertain the project’s need for debt," the second banker added.

The bankers’ optimism mirrors that of the entire industry. Lenders are returning to focus on corporates, who, for some time now, have been reluctant to take on more debt and invest in fresh projects. The government’s plan to nudge private capex with public investment is off to a slow start. In fact, finance minister Nirmala Sitharaman recently asked Indian businesses what held them back from investing in the economy when foreign investors and domestic retail investors are confident about the economy.

“We are quite bullish on corporate finance at the moment. Most of the investments are also coming from large conglomerates, and we would not like to miss out on such deals," said the second banker.

An email sent to a spokesperson for Vedanta remained unanswered.

To be sure, the number of new investment projects announced rose sharply in FY22 but lagged pre-covid numbers. Investment plans of 791 projects were made during 2021-22, aggregating to 1.95 trillion, as against 576 projects in 2020-21 with investment intentions of 1.17 trillion, comparatively lower than the levels seen since 2016-17, showed data released in a recent Reserve Bank of India (RBI) bulletin.

Troubled by rising interest rates, companies are going slow even on using loans that have already been sanctioned. Mint reported on 2 September that corporate utilization of loan limits remains low as companies await stronger growth signals before spending big, even though utilization levels are better than last year.

At the largest domestic lender, State Bank of India (SBI), many loans sanctioned to companies are yet to be utilized as private capital expenditure remains below expectations. As much as 49% of working capital loans and 26% of term loans remain unutilized, taking the quantum of such loans to 5 trillion as of 30 June. Both saw deterioration from the March quarter when the non-utilization of working capital was 46%, and that for term loans was 19%.

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