The liquidity of London-based Vedanta Resources, the parent company of Indian mining major Vedanta, hinges on its ability to raise funds and the next few
weeks would be crucial for the company, according to a report by S&P Global Ratings.
The company is “highly likely” to meet its obligations until September 2023. However, sustaining liquidity beyond that would depend on the completion of at least one of two key ongoing transactions. These include a targeted $2-billion fund-raising exercise, and the proposed sale of international zinc assets by Vedanta, in which Vedanta Resources has 70% stake, to Hindustan Zinc (HZL), the report said.
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Vedanta, helmed by mining billionaire Anil Agarwal, has a 65% stake in HZL.
The rating on Vedanta Resources is likely to come under immediate pressure if neither of these transactions progresses over the coming weeks, said the report, adding that Vedanta Resources is fully-funded till March 2023, following a dividend declared by Vedanta in January.
“We estimate further dividends from Vedanta, together with management fees, can be used to meet about $1.5 billion of the $2 billion the parent requires between April and June, including intercompany loans and interest expenses. Vedanta Resources has debt maturities of only $15 million between July and September.”
Vedanta Resources will need to raise a minimum of about $500 million to meet its obligations until June. Debt repayments during this period include $300 million of intercompany loans and $350 million to two relationship banks. These offer the company some funding flexibility.
In the absence of a significant fund raising, Vedanta Resources will be left with very little cash, of about $500 million, following the repayments. This will make external funding critical for debt maturities after September, which include $500 million of loan repayments in the quarter ending December 31, 2023, and a $1 billion bond in January 2024.
This is where Vedanta Resources’ ability to close the $2 billion fund raising over the next few weeks is critical. If the company raises at least $1.75 billion as targeted, it will be fully funded until January 2024. In this scenario, it will also have low dependence on dividends from Vedanta until December and the cash that will be retained will support the refinancing of the January 2024 maturity.
The zinc transaction, if completed, would be equally positive. Vedanta Resources would potentially have about $2 billion of liquidity available following the transaction. However, the execution risk of this transaction is higher, due to the uncertainty over the outcome of the shareholder vote. “We would factor in the proceeds of this transaction only once there is certainty around its completion,” it added.
Earlier, the Indian government nominees on HZL board had dissented to plans to purchase the overseas zinc assets of Vedanta for almost $3 billion, raising concerns on the rationale for the transaction. However, it was approved by HZL’s board at a meeting held on January 19.