Billionaire Anil Agarwal's debt-cut blitz turns heat on Vedanta units

By Swansy Afonso and Divya Patil

Billionaire Anil Agarwal’s mining conglomerate has bonds coming due at the end of this month that cast the spotlight on the long-term financial health of his group’s India-listed units.

While debt prices suggest that investors have little doubt that London-listed Vedanta Resources Ltd. will be able to pay $517.8 million of interest and principal on a dollar note maturing on May 31, there are questions over bonds due from next year onward. 

In signs that the company is pushing ahead with efforts to raise funds, the Vedanta Group secured a five-year loan for about $850 million from JPMorgan Chase & Co. and Oaktree, people familiar with the matter said, while unit Vedanta Ltd. said it will award a dividend of 68.8 billion rupees ($830 million), adding to five rounds of generous payments last fiscal year.

 

Agarwal is struggling to reduce gross borrowings of $6.8 billion as of April at Vedanta Resources in a volatile debt market. Dividend payments are helping the company meet its obligations while reducing cash reserves at units that are paying them. The subsidiaries also face challenges from shaky markets in metals they deal in such as aluminum, zinc and copper, due in part to stalling demand from China, the world’s biggest consumer of some of those resources.

Vedanta companies have seen their share prices drop so far this year, in another negative factor for their fundraising, given that they’re increasing usage of equity as collateral to borrow money. The companies are also seeking other ways of securing more cash, with Vedanta Ltd. in talks with US-based Farallon Capital Management to raise at least $1 billion.

“Vedanta is fully confident about servicing its debt on schedule,” the company said in reply to Bloomberg questions on the status of its debt reduction steps and signs of concern in the bond market about future repayments. 

Bond Performance

Vedanta Resources’ bonds due this month are trading at 99.3 cents on the dollar, an indication of confidence in repayment since they are near the 100 cent issue price. The firm faces a bigger debt bill in January 2024 though when $1.1 billion of payments on principal and interest are due for a note—that’s down more at 89.7 cents on the dollar. 

Of its five outstanding dollar bonds, the three others that are due later have lower prices. The firm’s debt maturing in August 2024 and April 2026 are trading below 70 cents a dollar, a level that’s generally considered distressed, and its March 2025 notes are close to that mark.

Record Dividends

Vedanta Ltd. paid dividends an unprecedented five times in the financial year ended March, boosting total disbursements to about 377 billion rupees. Its unit Hindustan Zinc Ltd. paid four dividends totaling about 319 billion rupees during the period, according to Bloomberg calculations. 

“Reduced cash holdings at subsidiaries could negatively impact future dividends payments,” said Mary Ellen Olson, senior credit analyst at Bloomberg Intelligence. The portion of the payments that Vedanta Resources gets is in line with its stake, which is currently 68.1% at Vedanta Ltd., she said.

Falling Reserves

Cash and cash equivalents at both Indian units have declined due to the dividend payouts. Hindustan Zinc posted a net debt figure of 17.8 billion rupees in the year ended March 31, the first time for the company’s borrowings to exceed its cash, highlighting the drawdown in liquidity.

India Ratings & Research revised Vedanta Ltd.’s outlook to negative in March from stable to reflect its lower-than-expected cash flow because of the unexpectedly high dividend payouts during this financial year and next, along with its own significant capital expenditures.

Commodity Prices

Disappointing economic data recently from China suggest that demand for commodities may not pick up much for now in the top metal-consuming nation. That would be bad news for Vedanta, which operates in key commodity markets including aluminum, zinc, copper, oil and gas and iron ore. 

The company has said that its future debt repaying ability would also depend on the prices of these raw materials. Vedanta Ltd. reported a 68% plunge in profits for the January-March quarter from a year earlier.

Share Performance

Vedanta Ltd. late last month pledged 1.91% of its equity holding in Hindustan Zinc to raise 11 billion rupees. That means that 94.29% of Vedanta’s total share capital is now listed as collateral. 

The group has released some shares that were used as collateral though. Vedanta Resources repaid $800 million worth of loans, allowing it to free up some shares of its unit Vedanta Ltd. that were used to secure the debt.