Investors look for long-term plan from Vedanta after bond sale

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December 14, 2020 10:54 AM

Analysts expect liquidity concerns to persist at Vedanta Resources, worsened by the difficulty in accessing cash from the money-spinning Indian units.

At the end of the September quarter, the promoter group of Vedanta held a 50.14% stake in the mining major, which is likely to increase to nearly 55% after the share purchase is complete.

Investors in Vedanta Resources Ltd. are turning their attention to the miner’s longer-term plan to streamline a complex group structure that has kept the parent from easily accessing cash at its units. Vedanta Resources, controlled by billionaire Anil Agarwal, allayed some immediate concerns this week when it received vital funding by selling $1 billion notes due 2024 at 13.875%, albeit at one of the highest yields for a dollar bond in Asia this year. The company plans to use that cash to finance a buyback offer for $670 million of notes due next year, and the rest to repay other debt or to increase stakes in its Indian units.

However, the company has yet to announce a plan on how it wants to address its structural challenges. A failed plan to simplify its corporate layout by delisting its Indian unit Vedanta Ltd. in October had triggered concerns on its ability to refinance its biggest wall of debt maturities in years.

Neel Gopalakrishnan, an analyst at S&P Global Ratings, expects the company to again focus on the inefficient structure after the bond sale. “We believe the company intends to improve its corporate structure by increasing its ownership in Vedanta Limited,” he said.

The company had called the privatization in May as “the next logical step” in addressing the structure to provide more financial flexibility in a capital-intensive business.

A spokesperson for Vedanta Resources declined to discuss the next steps, only saying the $1 billion bond sale this week amounted to a vote of confidence from investors in the company.

However, another attempt at the buyout of the Indian unit won’t be easy. In October, shareholders of Vedanta Ltd. thwarted the plan to delist it as some investors including Life Insurance Corp. of India, among the biggest public shareholders, demanded a higher price for tendering their shares.

If the company tries to privatize the unit at too high a price, “it might encounter funding issues again,” said R. Lakshmanan, an analyst at CreditSights Singapore LLC.

Moody’s Investors Service, which is reviewing the credit ratings for downgrade, said last week it could confirm Vedanta Resources’s grades if it simplifies its group structure and refinances upcoming debt maturities with long-term debt. Moody’s expects the review to conclude in the next three months.

Analysts expect liquidity concerns to persist at Vedanta Resources, worsened by the difficulty in accessing cash from the money-spinning Indian units. The trouble resurfaced last month when a $956 million loan from Vedanta Ltd. — channeled through another unit Cairn India Holdings Ltd. — to parent Vedanta Resources led to a spat with a hedge fund.

“At the moment, the company does not have a longer-term sustainable solution to address its debt repayment,” Lakshmanan said.

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