Investors in Vedanta Resources Ltd. are turning their attention to the miner’s long-term plan to optimize a complex group structure that has prevented the parent from easily accessing cash in its units.
Vedanta Resources, controlled by billionaire Anil Agarwal, allayed some immediate concerns this week when it received vital funding by selling 1 billion dollar bills due 2024 at 13.875%, albeit with one of the highest returns for a dollar bond in Asia this year. The company plans to use that cash to fund a buyback offer for $ 670 million of notes due next year, with the remainder to pay off other debts or 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 design by delisting its Indian unit Vedanta Ltd. in October had raised concerns about its ability to roll over its longest wall of debt maturities in years.
Neel Gopalakrishnan, an analyst at S&P Global Ratings, expects the company to focus again on the inefficient structure after the bond sale. “We believe that the company intends to improve its corporate structure by increasing its stake in Vedanta Limited,” he said.
The company had called the privatization in May “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 next steps, saying only that the $ 1 billion bond sale this week amounted to an investor vote of confidence in the company.
However, another attempt to purchase the Indian unit will not be easy. In October, Vedanta Ltd. shareholders thwarted a plan to delist it as some investors, including India’s Life Insurance Corp., one of the largest public shareholders, demanded a higher price for their share offering. .
If the company tries to privatize the unit at too high a price, “it could run into financing problems again,” said R. Lakshmanan, an analyst at CreditSights Singapore LLC.
Moody’s Investors Service, which is reviewing credit ratings for downgrades, said last week that it could confirm Vedanta Resources’ ratings if it simplifies its group structure and refinances upcoming debt maturities with long-term debt. Moody’s expects the review to be completed in the next three months.
Analysts expect liquidity concerns to persist at Vedanta Resources, compounded by difficulty accessing cash from Indian money-spinning units. The problem resurfaced last month when a $ 956 million loan from Vedanta Ltd., channeled through another unit, Cairn India Holdings Ltd., to parent Vedanta Resources sparked a dispute with a hedge fund.
“At the moment, the company does not have a longer-term sustainable solution to address its debt repayment,” Lakshmanan said.
(With the help of Swansy Afonso.)