Vedanta Resources Ltd., led by Indian billionaire Anil Agarwal, is at a pivotal juncture as the mining company seeks approval for a proposal to extend the due dates on $3.2 billion in bond repayments. Bondholders have until January 2 to provide early consent to the plan, prompting S&P Global Ratings to further downgrade the company’s rating in December.
To proceed with the plan, Vedanta requires approval from at least two-thirds of bondholders in each of the three securities. A crucial holder meeting is scheduled for January 4.
This move is part of Agarwal’s ongoing efforts to fortify Vedanta’s balance sheet, which includes selling a stake in its Mumbai-listed subsidiary and securing a $1.25 billion private loan. However, concerns persist about Vedanta’s financial health, given the high borrowing cost of 18% to refinance debt.
Vedanta’s Proposal:
The miner’s proposal involves paying $779 million by early February for notes maturing in 2023 and 2025. Additionally, Vedanta plans to extend the maturity on the remaining principal by up to four years. There is no proposed change to the principal amount or the coupon on notes due in April 2026. The miner seeks approval to revise the fixed charge coverage ratio, a leverage covenant.
S&P Global and Bondholders’ Perspectives:
S&P Global downgraded Vedanta Resources’ rating to CC from CCC, suggesting a potential downgrade to selective default. Despite this, S&P anticipates robust earnings and strong cash flows, especially as commodity prices improve and Indian units contribute substantial dividends annually. However, a group of adhoc holders of the company’s guaranteed notes contends that the proposal doesn’t represent the best terms for the notes.
Recommendations and Skepticism:
Research firm CreditSights recommends bondholders give their consents for the amendments, citing more attractive revised terms. However, S&P Global remains skeptical, highlighting the lack of adequate compensation for maturity extensions and Vedanta’s prioritization of cash flows over other creditors.
Market Response:
Vedanta’s dollar bonds due this month have been more supportive of the liability management exercise, while the remaining three trade below the distress threshold of 80 cents on the dollar. Notably, the bond due in August 2024 experienced the largest monthly gain since September, rising to 66.4 cents.
Vedanta’s Evolution:
Anil Agarwal’s journey from aluminum conductor manufacturing to Vedanta Ltd.’s ambitious acquisitions has made the company a significant player in the mining industry. Agarwal’s acquisition spree, including Bharat Aluminium Co., Hindustan Zinc, Sesa Goa Ltd., and Cairn India, led to Vedanta’s listing in London in 2003. The company later went private in 2018. The conglomerate’s substantial debt is a consequence of this acquisition-driven expansion.
