Vedanta repays more maturing debt

Published 02 June, 13:46

Metals, mining, and energy holding company Vedanta Resources (VRL) announced on May 31 that it has repaid all its debt maturing in May and June this year, after raising funds through private loans in the past few weeks.

The company repaid its USD 500 mn 7.125% notes at the end of May, after fully repaying the rest of its USD 800 mn of loan facilities to Standard Chartered in London and Hong Kong on May 23.

VRL said its gross debt has declined to USD 6.4 bn, compared to USD 6.8 bn at the end of April. It has reduced its debt by USD 3.3 bn since it announced its deleveraging plan in March 2022.

Credit analysts said VRL met its payments thanks to recent loans, which include a USD 250 mn borrowing from Glencore International for refinancing.

As part of the facility agreement, direct and indirect encumbrances were created over shares held by VRL subsidiary Finsider International in favour of Glencore.

VRL also raised a USD 850 mn three-year loan from JP Morgan and Oaktree Capital Management, according to sources close to the development. JP Morgan has committed USD 300 mn and the remainder is from Oaktree.

Mauritius-based group company THL Zinc Ventures was the borrower of the facility, which carried a guarantee from Vedanta Ltd. Around a 3.3% stake in Hindustan Zinc was given as collateral, according to a credit note by Nomura International on May 31.

VRL is also heard to have raised USD 200 mn from another commodity trading firm, Trafigura, to repay a loan from Oaktree.

The arrangement of the new financing channels from the commodities trading firms is seen as a positive, as Vedanta's debts had raised worries in the market.

"These trading firms potentially understand the business risk of such commodity producers well," and can meet the financing shortfall when needed, potentially executing faster than banks, Lucror Analytics said in a note on May 31.

"While it is an unusual source of financing, I don’t see that as a sign of desperation," said Trung Nguyen, Lucror Analytics' Asian high yield senior credit analyst, in an emailed response.

Following the latest rounds of debt raising exercises, Nomura estimates that cash at the VRL holding company level is expected to be at USD 210-220 mn at the end of June.

The company said it is confident of "targeting further debt reduction during the balance of FY24, and ultimately intends to lower gross debt towards zero," on the back of robust demand in India and a strong operational performance.

However, CreditSights estimates VRL still needs to raise USD 1.25 bn to meet the upcoming debt payments in the financial year ending March 2024, which includes USD 1 bn of 13.875% bonds due on 21 January 2024.

VRL may continue to pledge the shares in its Indian units, upstream dividends from Vedanta Ltd, look to privately place INR 21 bn (USD 255 mn) of rupee bonds for which it has already received board approval in April and draw on a rumoured USD 1 bn loan from US hedge fund Farallon Capital, according to a note by CreditSights on May 25. Farallon Capital is still awaiting approval from India’s central bank over the provision of corporate guarantees from Vedanta Ltd for the loan, the note said.

Separately, Vedanta Ltd has pledged its shares in subsidiary Hindustan Zinc, according to a stock exchange filing from the company on May 26. Vedanta and THL Zinc pledged 183.78 mn shares on April 27 and 139.44 mn shares on May 22, representing 7.65% of Hindustan Zinc’s total equity. The filing did not specify the purpose of the pledge.

On May 22, the Vedanta Ltd board announced a first interim dividend of INR 18.5 per equity share for the financial year ending March 2024, for a total of INR 68.77 bn. This is after Vedanta Ltd announced a record dividend pay-out of over INR 400bn for the financial year ended March 2023, according to rating agency Crisil.

By Krishna Merchant, Mirzaan Jamwal