A $2.5 bn debt bill shows risks ahead for Anil Agarwal's Vedanta Resources

By Swansy Afonso and Divya Patil

A moment of reckoning is approaching for Vedanta Resources Ltd. Indian billionaire Anil Agarwal’s miner has $500 million worth of debt to pay on May 31, and another $2 billion due in 2024 — a record annual bill for the company. While the May bond is trading just shy of par, pricing data on some other bonds indicate investors have repayment concerns down the road.

Vedanta Resources is rated junk, but most of the group’s businesses are profitable. At issue is the money the group companies regularly send to their London-based parent. While the commodities firm is pushing to reduce its debt and repaid loans and bonds in April, its reliance on dividends has caused cash reserves at the subsidiaries to dwindle.

 

What’s happening now?

Vedanta borrowed $250 million to refinance debt from Glencore International AG, its latest in a series of efforts to come up with funds. The miner also signed a five-year loan for about $850 million with JPMorgan Chase & Co. and Oaktree, according to people familiar with the matter.

Vedanta’s dollar note maturing Wednesday is trading at 99.4 cents to the dollar, indicating confidence in the market that it will be repaid.

How much debt does Vedanta owe?

Vedanta Resources has achieved 75% of its target to trim debt by $4 billion in three years and gross debt stood at $6.8 billion at the end of April.

Future deleveraging will depend on its operational performance and commodity prices, the firm said. In May, the company paid off a further $800 million in loans.

Why is the company’s ability to repay debt in focus now?

Funding debt payments may become more difficult for the company now because multiple dividends over the past year have drawn down cash reserves at its units. Vedanta Ltd. paid five dividends totaling about 377 billion rupees ($4.6 billion) in the financial year ended March, and Hindustan Zinc Ltd. awarded four dividends during the period. 

Cash reserves as of March at both of the subsidiaries fell to the lowest since at least June 2020, and Hindustan Zinc’s debt exceeded its cash for the first time. A drop in metals prices could also crimp profitability.

What’s at stake for Vedanta?

Agarwal aims to expand business to areas that are priorities for Indian Prime Minister Narendra Modi. The tycoon’s holding company Volcan Investments Ltd. tied up with Taiwan’s Hon Hai Precision Industry Co. to build a $19 billion semiconductor factory in Gujarat.

How are the company’s bonds faring?

Out of its five outstanding dollar bonds, Vedanta Resources’ debt due in August 2024 and April 2026 are trading around or below 70 cents a dollar, a level that’s generally considered distressed. Notes due in March 2025 are close to that level, signaling investor concerns.

How did the company become such a big player?

Agarwal, who was raised in the Indian state of Bihar, took over his father’s business making aluminum conductors in the 1970s, and then branched into trading scrap metal.

He built Vedanta Ltd. through a series of ambitious acquisitions: In 2001, Agarwal bought a controlling stake in then government-owned Bharat Aluminium Co. and he followed that up with the purchase of another state-run firm, Hindustan Zinc. He successfully bid for iron ore producer Sesa Goa Ltd. in 2007 and for Cairn India. Vedanta Resources also owns copper and zinc operations in Africa.

The company was the first in India to list in London back in 2003, before Agarwal took it private 15 years later when his Volcan Investments bought out minority investors as part of efforts to streamline the group’s structure. 

How are his businesses faring now?

Most of Agarwal’s businesses are profitable. His cash cow is Hindustan Zinc, which is backed by lead and zinc mines in Rajasthan, and contributed half of Vedanta Ltd.’s profits in the quarter ended December. It also produces silver, an alternative to gold, of which India is the world’s second-biggest consumer. Oil and gas and aluminum combined make up for most of the rest of profits. Its aluminum unit is the largest producer of the metal in India.

What measures has Agarwal taken to get greater access to cash?

The crux of Agarwal’s problem is that each time a dividends are sent upstream, some of the funds go to outside investors. Vedanta Resources has tried to take Vedanta Ltd. private , but the plan was thwarted by minority shareholders.

After India’s government stymied plans to offload about $3 billion of Vedanta’s global zinc assets, Agarwal is studying options including selling a minority stake in Vedanta Ltd., Bloomberg reported in late March, citing people familiar with the matter.