London-listed Vedanta Resources will be raising $1.5 billion in bonds to repay the short-term bridge loan of the same amount it raised to fund the $9.6-bn Cairn India buy.
A company statement said, “Vedanta expects to use the proceeds of the offering for, among other things, to finance a portion of the purchase price for the acquisition and to pay related fees and expenses.”
Road shows for the bond sale will begin from Monday. The bond will be offered in two tranches, with different maturities.
Barclays Capital, Citigroup, Credit Suisse, Royal Bank of Scotland and Standard Chartered Bank have been appointed joint global coordinators. Goldman Sachs International and Morgan Stanley are joint book runners for the bond issue. UniCredit Capital Markets LLC is co-manager.
Standard and Poor’s has assigned a ‘BB’ rating to the proposed fund raising activity of Vedanta. S&P expects Vedanta’s financial risk profile to weaken following the acquisition.
It said, “The rating incorporates our view that the company's proposed acquisition of Cairn will proceed without material changes in the proposed terms. Nevertheless, the Indian government is yet to approve the transaction. The terms of the deal may be less favourable than those Vedanta initially proposed, particularly if the government amends the royalty terms to favour Oil and Natural Gas Corp Ltd. The rating also reflects our expectation that Vedanta's overall business risk profile will remain unchanged after the acquisition. In our opinion, operating risk will increase for Vedanta because Cairn represents a new line of business, offsetting any benefits from further revenue diversification.”
In November 2010, Vedanta said it had entered into financing agreements with a consortium of banks for the $6 billion loan. The consortium comprised Barclays Capital, Citi, Credit Suisse, Goldman Sachs, JPMorgan, Morgan Stanley, Royal Bank of Scotland and Standard Chartered.
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In the agreement with Cairn Energy Plc, Vedanta was to acquire 31-40 per cent in Cairn India. Sesa Goa, its Indian iron ore mining subsidiary, was to another 20 per cent.The latter has already acquired 18.5 per cent through a stake buy from Petronas and an open offer.
The deal is still awaiting a green signal from the central government. A ministerial panel is to meet on May 27 on it. The original deadline to complete the deal was April 15. Vedanta and Cairn then extended the deadline to May 20, which was pushed further ahead indefinitely yesterday.