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Vedanta Resources nears $3 billion refinancing deal

Rising borrowing costs have significantly increased the challenges faced by Anil Agarwal’s mining empire. (Mint)
Rising borrowing costs have significantly increased the challenges faced by Anil Agarwal’s mining empire. (Mint)

Summary

JPMorgan Chase and Standard Chartered to offer loan at higher interest rates

Billionaire Anil Agarwal’s Vedanta Resources Plc is in advanced talks with JPMorgan Chase and Standard Chartered Bank (StanChart) to secure a $3 billion refinancing facility to stave off a default, people familiar with the development said.

The top management of the mining and metals conglomerate held meetings with several large banks across Europe and the US over the past few weeks, the two people said, requesting anonymity.

Vedanta Resources, which owns 63.7% of India’s Vedanta Ltd, is staring at bond repayments of $3.1 billion coming up in 2024-25. While generous dividends from its units have helped the London-based parent meet payment obligations so far, it has depleted the cash reserves of Vedanta Ltd and other units, limiting their growth potential.

Graphic: Mint
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Graphic: Mint

Rising borrowing costs have significantly increased the challenges faced by Agarwal’s mining empire. With substantial repayments looming, the London-based parent is pursuing debt refinancing in the short term and considering share sales in its units to reduce its debt burden.

Vedanta Ltd, which announced a major restructuring via multiple demergers on Friday, has amassed a net debt of 59,192 crore as of 30 June, doubling in the past year from 26,799 crore, according to regulatory filings.

Vedanta Resources’ Indian units, Hindustan Zinc Ltd and Vedanta Ltd, paid out a total dividend of $4 billion and $1.2 billion, respectively, to their shareholders in FY23. Of these, the parent received $2.5 billion.

To deleverage its balance sheet, Vedanta Resources has largely relied on these dividends. It has, however, also monetized a 6% stake in Vedanta Ltd over the past year. Accordingly, Vedanta Resources’ debt, which stood at $9.06 billion as of 31 March 2022, has declined to $5.9 billion in June 2023.

Vedanta Resources Finance II Plc’s $1 billion dollar bonds are maturing on 21 January 2024, while Vedanta Resources’ $951 million bonds are maturing on 9 August 2024. Further, Vedanta Resources Finance II Plc’s $1.2 billion bonds will mature on 11 March 2025.

These bonds, according to the two people, are mostly held by JPMorgan Chase and StanChart, according to the people cited above.

“This is technically a fee-based deal to roll over Vedanta Resources’ bonds through another large loan at a higher interest rate. Neither the two banks nor the company wants the loan to go bad," said one of the two people.

According to the latest deal discussions, JPMorgan and StanChart may extend a refinancing “limit of $1.5 billion each" for Vedanta Resources, said the first person.

“The credit amounts (of refinancing) could be disbursed in tranches over 18 months starting from January," said the first person. The disbursements will be made in varying amounts, such as $450 million, $300 million or $750 million, as and when the need arises, the person added.

A StanChart spokesperson from London declined to comment, Queries sent to Vedanta Resources and JPMorgan Chase remained unanswered till press time.

Vedanta Resources will likely pay a fee to the two banks for the restructuring deal, reflecting the desperation to secure cash to repay debt, the people cited earlier said.

Any default by Vedanta Resources may deal a further blow to the credit rating of the firm. This could impede the ability of group companies to secure working capital, which may force the promoters to divest assets—something that Agarwal is averse to.

“The proximity of Vedanta Resources’ large bond maturity in January has increased the likelihood of the company undertaking a liability management exercise. Vedanta Resources has initiated talks with bondholders to help address the company’s bond maturities of about $3 billion, including $1 billion in January 2024," said a Friday report by S&P Global Ratings. In August, S&P Global downgraded its outlook on Vedanta’s B- speculative-grade rating to negative from stable. Earlier, it said Vedanta’s refinancing risks would increase unless a repayment plan was outlined at least six months before the debt’s maturity.

On Friday, while announcing a business overhaul in India, the Vedanta Group said it will demerge Vedanta Ltd’s businesses into six independent companies, with a plan to list five of them by FY25.

Independent “pure play" companies will “unlock value" and attract “big ticket" investment into the expansion and growth of each of the businesses, Vedanta Ltd said, adding that the filing for the mandatory nod from the Securities and Exchange Board of India is likely in October.

On Tuesday, Vedanta Ltd shares rose 3.8% to 230.80 on BSE, while Hindustan Zinc’s shares were little changed at 306.85.

 

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