Vedanta Resources’ failure to privatise Vedanta Ltd had raised concerns over the company's ability to sustainably service its debt beyond the next 12 months.
The holding company faces debt maturities of about $1.2 billion till March 2022.
S&P Global Ratings has revised the outlook for Vedanta Resources to ‘stable’ from ‘negative’, as the commodity conglomerate strengthens the ability to meet its debt obligations over the next 12-18 months through improved capital structure.
Vedanta Resources has announced an open offer to acquire an additional 10% stake in its 55% owned subsidiary Vedanta Ltd, which analysts expect, will strengthen the corporate structure of the holding company and improve its access to subsidiary-level cash and cash flow.
The acquisition, expected to conclude by March 2021, should also be positive for the company’s refinancing initiatives, the rating agency noted. “We estimate free cash flow at Vedanta Ltd (including Hindustan Zinc Ltd) will be $1.6 billion-$1.8 billion over the 12 months to March 31, 2022,” analysts at the agency said. Based on the floor price, Vedanta Resources will incur an additional $800 million in debt to fund the acquisition of Vedanta Ltd’s 10% stake.
The holding company faces debt maturities of about $1.2 billion till March 2022. In December 2020, Vedanta Resources redeemed about $485 million of its $670-million bond due in June 2021. Its next major obligation is the $1-billion bond due in July 2022. The company is seen to be relying on dividend payments and inter-company loans for servicing its debts, and it has already loaned about $300 million from Cairn India in the first quarter of FY21. Vedanta Resources also has debt maturities of about $2.5 billion in FY23 and about $3.2 billion in FY24, including repayments of inter-company loans of about $750 million over the two years.
Vedanta Resources’ failure to privatise Vedanta Ltd had raised concerns over the company’s ability to sustainably service its debt beyond the next 12 months. S&P Global had said in October 2020 it could downgrade the company if it is unable to lower refinancing risk by improving funding access and service its debt sustainably.
In the first half of FY20, Vedanta Ltd raised around $1.3 billion in new debt facilities by pledging its 14.82% shareholding in cash-rich and profitable 64.9% owned subsidiary Hindustan Zinc Ltd. Delisted from the London Stock Exchange in October 2018, Vedanta Resources is now wholly-owned by Volcan Investments Ltd. Vedanta Resources founder-chairman Anil Agarwal and his family are the key shareholders of Volcan.