 "Vedanta may successfully handle its debt in the next 12 months: Report")
Vedanta Resources (VRL), a London-based company and the parent company of Indian mining major Vedanta (VEDL) is expected to successfully handle its debt repayments in the next 12 months. The methods of refinancing and potential strategies to execute this was detailed in a report by CreditSights covered by the Financial Express (FE).
While VRL’s debt recovery may be successful, CreditSights noted there is still a concern about refinancing risk for a $4.2 billion loan due in the current financial year (FY24), and the report highlights the possibility of execution challenges.
Moreover, if funds are not secured by late FY24, it could pose risks to VRL.
CreditSights stated in their report that they anticipate VRL's success in servicing its debt maturities in the next year, supported by the recent fundraising efforts of $1.3 billion.
They also believe that various funding channels are still available to the company. These funding channels include pledging stakes, upstreaming dividends, and the recently approved private placement of domestic bonds worth up to Rs 2,100 crore.
FE added that $1.3 billion fundraising is expected to provide VRL with greater financial flexibility, as it demonstrates their continued access to loan markets. This includes a $850 million five-year loan from JP Morgan and Oaktree Capital, a $250 million loan from Glencore, and a $200 million loan from Trafigura.
As of March 31, 2023, VRL has $1.7 billion in short-term investments, such as bank deposits, quoted bonds, and mutual funds, which can be liquidated if necessary.
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The dividend upstreaming from operating companies, such as VEDL, which declared an interim dividend of $830 million for FY24, would assist in debt servicing. VRL is entitled to $565 million of this dividend based on its 68.11 per cent stake in VEDL.
Additionally, by pledging a portion of its stake in Hindustan Zinc (up to 2.7 per cent stake), VRL could raise around $190 million in debt, and pledging a portion of its stake in main VEDL (up to 68.11 per cent stake) could raise approximately $3.8 billion in debt.
CreditSights also noted the concern regarding refinancing risk for the $4.2 billion term debt due in FY24 and expects VRL to heavily rely on external fundraising of approximately $2.1 billion, along with an additional $950 million to fill the funding gap.
However, the report cautioned about execution risks and highlighted the downside risks if refinancing talks fail or funds cannot be secured by late FY24.
CreditSights believes that if refinancing is successful, bond prices will increase by approximately 10-15 points across the board. On the other hand, failure to refinance could lead to a significant drop in bond prices to around 50 cents on the dollar.
For FY24, VRL's credit metrics are expected to mildly deteriorate year-on-year, primarily due to lower commodity prices throughout the year.
Aside from the CreditSights observations, Business Standard had also previously reported that for Vedanta’s founder and chairman, Anil Agarwal, this was a deciding moment in his portfolio. During a media event in March,
Aggarwal had insisted that the company would be able to settle its debt.
“As long as there is no issue in governance, one can continue to grow,” he said.