London-headquartered Vedanta Resources (VRL), the parent company of Indian mining major Vedanta (VEDL), is expected to “successfully” service its debt maturities in the next 12 months, according to a report by CreditSights.
However, it is watchful of the refinancing risk for $4.2 billion term debt due in FY24 and has cautioned of execution risks, while inability to tie up funds for late FY24 would pose downside risks.
“We expect VRL to be successful at servicing its debt maturities in the next 12 months, aided by the recent $1.3 billion fundraising efforts and our expectation that various funding channels still remain open…,” the financial research firm said in a report.
The funding channels include stake pledging, dividend upstreaming, domestic bond private placement of up to Rs 2,100 crore ($255 million) recently approved, it said.
The $1.3-billion fundraising efforts are expected to provide “greater” financial flexibility as they also indicate VRL’s continued access to the loan markets ($850 million five-year loan from JP Morgan and Oaktree Capital, $250 million loan from Glencore and $200 million loan from Trafigura).
VRL has $1.7 billion of short-term investments in various bank deposits, quoted bonds and mutual funds as of March 31, 2023, which it could liquidate if the need arises.
Pledging of residual promoter stake in Hindustan Zinc for up to 2.7% stake would enable it to raise about
$190 million of debt, and that in main VEDL for up to 68.11% stake could raise about $3.8 billion of debt.
Further, dividend upstreaming from operating companies (VEDL declared its first interim dividend for FY24 totalling $830 million, which entitles VRL to $565 million proportionate to its 68.11% stake in VEDL), would also help in servicing debt.
“We are watchful of refinancing risk for $4.2 billion term debt due in FY24, and expect the company to rely heavily on external fundraising of about $2.1 billion and an additional $950 million for funding gap,” it added.
However, CreditSights cautioned of execution risks. The failure of refinancing talks or an inability to tie up funds for late-FY24 pose downside risks.
“If the refinancing is successful (which we expect), we anticipate the bond prices will rally by about 10-15 points broadly across the curve, while a failure to do so, would likely result in a sharp sell-off in bond prices to about 50 cents to the dollar,” it added.
For FY24, VRL’s credit metrics are likely to deteriorate mildly on a year-on-year basis, led by expectations of lower commodity prices through the year.