Vedanta Resources to raise $1.2 bn next week to refinance loan

Metals and energy giant Vedanta Resources plans to raise close to $1.2 billion from international markets next week to refinance a loan it took in 2011 to buy Cairn India Ltd, sources said.

According to banking sources, top bankers, including Citibank, StanChart and Bank of America have lined up to refinance the loan for Vedanta.

With this, Vedanta will become the latest to join the list of companies that are raising dollars to fund their projects in India. Vedanta is planning to transfer the entire loan taken to buy Cairn India Ltd to its Indian subsidiary, Sesa Sterlite Ltd.

After a complex restructuring exercise, Vedanta is now the ultimate holding company with all its Indian operations coming under Sesa Sterlite. According to a JP Morgan report, Vedanta investors are worried if the depreciation of the rupee would hit its reported debt and net worth for the proposed merged entity of Sesa Sterlite. Of its consolidated gross debt of $13.5-billion, $8-billion debt is dollar-based. However, the translation loss is unlikely on the entire amount given a part of the debt is for capital spend.
 

"A large part of any hit on the rupee fall would likely go through the reserves and not the profit and loss, as majority of the dollar debt is in a subsidiary. A large part of the earnings excluding power are essentially leveraged to the dollar, and a weakening rupee is positive for reported earnings and cash flows," said the report dated June 18. "The key concern for Sesa Sterlite will be the huge debt whereas the cash flow visibility remains low," it noted.