Vedanta pledges more Hindustan Zinc stake for loan
Hindustan Zinc intends to use the loan for capital expenditure, debt repayment, and operational expenses, according to a regulatory filing
PremiumMUMBAI : Billionaire businessman Anil Agarwal-owned Vedanta Ltd, the promoter of Hindustan Zinc Ltd, has pledged 2.44% more shares of the latter as collateral to avail a term loan of ₹1,500 crore. With this, the portion of HZL stake pledged by Vedanta has risen to 91.35% or about 59.3% of the company’s overall shares.
HZL intends to use the loan for capital expenditure, debt repayment, and operational expenses, according to a regulatory filing.
The latest pledge of 103.24 million promoter shares, executed on 17 April, has increased the total amount of HZL’s shares pledged to 59.3% from 55.87% in March 2022, according to the filing.
HZL is the country’s largest zinc miner with a market capitalization of ₹ 1.38 trillion.
Vedanta has been steadily increasing its pledge in HZL.
Vedanta is the Indian unit of Vedanta Resources Ltd, which has operations in oil and gas, zinc, lead, silver, copper, iron ore, steel, aluminium, and power in India, South Africa, Namibia, and Australia. Before the latest 2.44% stake pledge, Vedanta had pledged 1% (of HZL’s stake) or 42.3 million shares in HZL on 5 December 2022, and on 23 May 2022. Vedanta, as promoter, had pledged 50.1% or 2.1 billion of HZL shares. Before that, in March 2021, the company had pledged 5.77% or 243.6 million shares in HZL.
Shares of Vedanta Resources’ Indian units have come under pressure due to increasing pledges.
HZL is trading almost 15% lower at ₹327.30 apiece on BSE as of Thursday from its 52-week peak of ₹383 on 19 January.
Vedanta’s stock has suffered an incessant fall over the past year and is now trading at ₹279.55 per share, 35% lower than its 52-week high of ₹428.70 on 20 April 2022.
In Vedanta, 99.99% of the promoter’s stake (equal to 70% of the company’s stake) are pledged, creating a downward pressure on the stock.
The government, which owns 29.54% in HZL, had in February opposed the miner’s proposal to buy zinc assets worth $2.98 billion from parent Vedanta as the Rajasthan-based company has been a cash cow for the energy-to-metals group, squeezing rich dividends for the exchequer.
Despite the increasing pledges, Vedanta’s promoters are somewhat in a comfortable leverage position currently. Last month, Vedanta Resources, the promoter of Vedanta, fully repaid $250 million in loans availed from Barclays Bank and Standard Chartered Bank. Vedanta Resources repaid $150 million to Barclays Bank and $100 million to Standard Chartered Bank.
However, despite the 16 March announcement on partial pledge release, Vedanta and HZL’s stocks remained weak as the overall pledge level remains high.
On 10 March, ratings firm Moody’s Investors Service downgraded Vedanta Resources corporate family rating to Caa1 from B3. Moody’s has downgraded the ratings to Caa2 from Caa1 on the senior unsecured bonds issued by Vedanta Resources and those issued by VRL’s wholly-owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by VRL. The outlook on all ratings remains negative.
In February, ratings agency S&P Global mentioned that Vedanta’s credit rating may worsen if it is unable to raise $2 billion and sell its overseas zinc assets.
To assuage investor concerns, on 17 March, Agarwal said he has never defaulted on his company’s debt repayment ever in his career.
Vedanta Resources said in March that the company is confident of meeting its liquidity requirements for the quarter ending June 2023.
In March, Hindustan Zinc had announced its fourth interim dividend of ₹26 per share, resulting in a total payout of ₹10,985.83 crore, according to an exchange filing. In the three previous interim dividends, Hindustan Zinc first traded ex-dividend on 20 July 2022, for a payment of ₹21 per share for FY23. It then traded ex-dividend on 23 November 2022, for a payment of ₹15.50 per share, and on 30 January 2023, for a payment of ₹13 per share for FY23.
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