Vedanta Resources Ltd.’s dollar bonds rallied on improved liquidity prospects after Vedanta Ltd. announced plans to sell its international zinc operations to unit Hindustan Zinc Ltd. for $2.98 billion and benefit from a dividend outflow by Anil Agarwal’s cash cow. Prices for all Vedanta Resources’ outstanding bonds rose on Friday. The company’s note due in April 2026 rose 7.8 cents on the dollar to 77.6 cents Friday, according to data compiled by Bloomberg. That’s the biggest gain since June 2020.

Rajasthan, India-based Hindustan Zinc will buy the assets of THL Zinc Ltd. Mauritius in a phased manner from its parent over a period of about 18 months, subject to regulatory approvals, the Indian miner said in an exchange filing Thursday. The operations of THL include Black Mountain Mining (Pty) Ltd. in South Africa and Skorpion Zinc (Pty) Ltd. in Namibia, it said.

The deal is important for Vedanta’s billionaire-owner Agarwal, who is seeking to simplify the corporate structure of his commodities empire and cut Vedanta Resources’ debt after a failed attempt to delist Vedanta Ltd. in 2020. London-based Vedanta Resources has $4.7 billion of dollar bonds maturing in the next four years, with $900 million of notes due in the first half of 2023, according to data compiled by Bloomberg.

The move is a “master stroke” for Vedanta Resources and Vedanta Ltd.’s minority shareholders as the deal can aid upstreaming of cash from the unit, deliver gains on higher valuations and the structuring avoids long-term capital gains tax, according to a report by Investec Capital Services Ltd. analysts including Ritesh Shah. Assuming up-streamed cash will be used for pay-outs, it will provide required relief to Vedanta Resources’ cash flow streams, it said. Shares of Vedanta Ltd. advanced as much as 3 per cent in Mumbai Friday, while Hindustan Zinc slumped as much as 9.9 per cent.

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The costly acquisition of the international zinc assets would run down cash reserves at Hindustan Zinc, according to brokerage Antique Stock Broking Ltd. The company’s total gross investments and cash and cash equivalents have eased in the past few quarters and were at 164.82 billion rupees ($2.03 billion) as of December’s end, an exchange filing showed.

Dividend Flow

One way for Agarwal to generate cash has been to get dividend payouts from Hindustan Zinc. The company on Thursday announced a third interim dividend of 13 rupees a share, totaling about 55 billion rupees. This is in addition to 154 billion rupees already paid out this financial year. A payment of 2 per cent of Hindustan Zinc’s consolidated revenue for use of brand and strategic management services to Vedanta will also add to liquidity at the parent.

Hindustan Zinc, which also appointed Agarwal’s daughter Priya Agarwal Hebbar as chairperson of the company, reported a net income for the third quarter that missed analyst estimates. Vedanta owns about 65 per cent of the miner and the Indian government holds about 30 per cent.