At a recent conclave, Anil Agarwal, the chairman of London-headquartered Vedanta Resources (VRL), said he had never defaulted on debt repayments “ever”. However, the industrialist, who expects to earn $10 billion from group companies next year, is racing against time to make VRL a “zero debt company”.
The group is trying to reduce VRL’s debt by using cash flows from operating companies, Hindustan Zinc (HZL) and Indian mining company Vedanta, apart from streamlining operations of group companies. It has also started repaying debt, industry experts and analysts said.
“My total debt from all investments stands at $13 billion. I earned $5 billion last year from my different companies and expect to earn $10 billion next year. I have never defaulted on debt repayment. People are trying to target our development. People are wondering how we never defaulted on anything,” Agarwal said at the ‘India Today Conclave 2023’.
Agarwal, who said he had invested $22 billion in oil & gas, $17 billion in aluminium and $20 billion in zinc, had earlier stated that making VRL a zero-debt company is not a distant dream, but a “medium-term and achievable goal”.
According to rating agency Moody’s Investor Service, VRL’s cash needs for the fiscal ending March 2024 were “large” and include a cross-border bond of $400 million due in April and another $500 million due in May 2023. Further, there is a $1-billion bond maturing in January 2024, and an estimated $1.1 billion in term debt, $450 million inter-company loan and an estimated interest bill of at least $600 million.
On March 10, Moody’s had downgraded the corporate family rating of VRL and senior unsecured bonds issued by the company over increasing risks in refinancing debts.
“Much of the debt is acquisition-funding raised to acquire operating companies. The group is trying to reduce the holding company debt by using cash flows from operating companies such as Hindustan Zinc (HZL) and that in Indian mining company Vedanta. Cash flows from HZL are much higher, and the dividend payments will help in reducing debt of parent firm Vedanta Resources,” Shriram Subramanian, founder and managing director of InGovern Research Services, a Bengaluru-based corporate governance advisory firm, said.
On Wednesday, Vedanta, the Indian subsidiary of VRL, approved its fifth interim dividend of `20.50 per share for FY23, entailing an outgo of `7,621 crore. With this, the mining major’s total outgo by way of dividends for the year stands at about `37,733 crore.
“The group was also looking to sell assets, and plans by VRL to sell its global zinc assets to HZL was part of this,” a sector analyst with a leading brokerage firm said, adding, but this is unlikely to happen “anytime soon” with the government opposing it citing valuation issues.
The Indian government holds a 29.54% stake in HZL that was privatised more than two decades ago and Vedanta holds a 65% stake in HZL.
Earlier this month, VRL repaid $100 million to Standard Chartered Bank, following which the company’s pledged shares were released. Prior to which on February 28, VRL said it was in advanced stages to tie up fresh loans of $1 billion from a syndicate of banks, apart from close to finalising $750 million bilateral facilities. The company had also said it was confident of meeting its maturities for the quarter ending June 23.
It also had pre-paid all of its maturities due till March 2023 and deleveraged by $2 billion in the past 11 months. Thus, it has achieved half of its $4 billion three-year debt reduction commitment in the first year, ahead of its plans for this fiscal.
“We previously expected holdco VRL to find sufficient funds through loans and dividends to address its debt maturities till June 2023. However, VRL faces ongoing delays in obtaining funds relative to our earlier expectations amid a funding environment that remains challenging with high interest rates, scarce market liquidity and tight credit availability,” Kaustubh Chaubal, a senior vice president at Moody’s said.
“These issues expose the company to material refinancing risks and exacerbate the likelihood of a payment default or a distressed exchange,” he added.