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Business News/ Companies / News/  S&P downgrades Vedanta Resources as company initiates bond restructuring
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S&P downgrades Vedanta Resources as company initiates bond restructuring

The restructuring aims to reduce Vedanta's immediate debt load and provide relief during a time when external capital is scarce and costly

Vedanta Resources, parent of India's Vedanta Ltd, is seeking investor approval to partially pay off and delay the maturity of three bond series by 29-52 months. (Photo: Reuters)Premium
Vedanta Resources, parent of India's Vedanta Ltd, is seeking investor approval to partially pay off and delay the maturity of three bond series by 29-52 months. (Photo: Reuters)

Mumbai: S&P Global Ratings on Thursday downgraded Vedanta Resources Plc, led by billionaire Anil Agarwal, following the company’s move to restructure $3.8 billion in corporate bonds to ease its immediate debt burden.

The London-based company, the parent of India’s Vedanta Ltd, is seeking investor approval to partially pay off and delay the maturity of three bond series by 29-52 months. The restructuring aims to reduce Vedanta’s immediate debt load and provide relief, at a time when external capital is scarce and costly, while operating subsidiaries have limited headroom in terms of paying out dividends.

The move has been labelled “distressed" by S&P analysts, leading to a downgrade of the long-term issuer credit rating for the affected bonds to “CC" from “CCC". The ratings remain under negative watch. The agency downgraded Vedanta Resources to “CCC" from “B-" in September.

Vedanta Resources has offered an upfront payment of 53% for its $1 billion bonds due next month, extending the remainder’s maturity to January 2027. For bonds maturing in August 2024 and March 2025, upfront payments of 6% and 16% are proposed, with the balance payable in three equal instalments between August 2027 and December 2028. The company has also offered to increase the coupon rates for these bonds from 6.125% and 8.95%, respectively, to 13.875%.

The restructuring also requires consent for bonds maturing in April 2026, although no changes to their profile have been proposed. Vedanta is offering a 2% consent fee for agreement to these terms by 27 December.

To finance the upfront payments and consent fees, Vedanta Resources has secured $1.25 billion in term debt maturing in April 2026. The loan has been secured with priority access to brand fee income and promoter guarantees. Additionally, until $750 million of this loan is repaid, it will have priority over any extraordinary dividends that any asset sales at Vedanta Ltd could generate.

S&P analysts believe the proposed terms don’t adequately compensate bondholders for the revised terms and delayed bond maturities. The return from the revised coupon rates and consent fee was “largely in line with that of other ‘CCC’ credits, rather than meaningfully higher", they noted.

This restructuring plan prioritizes the new credit facility over other creditors for significant cash flow and asset sale proceeds, they added.

Vedanta needs the consent of at least two-thirds of the bondholders with a quorum of two-thirds of the outstanding amount of each bond to proceed with the restructuring.

Failure to secure this support raises the risk of a conventional payment default, S&P analysts noted, especially with limited progress on alternative repayment plans for the $1 billion bond due next month.

On Thursday, the yield on Vedanta’s January 2024 bonds fell by about 3% over the previous day to just under 91 cents on the dollar.

Shares of the Indian subsidiary Vedanta Ltd closed 0.61% higher at 254.75 apiece on BSE, in contrast to a 1.34% rise in the benchmark Sensex.

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Published: 14 Dec 2023, 06:07 PM IST
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