Vedanta Resources repays $800 millions loans, still concerns about liquidity?
After the pressure on low-rated borrowers with high debt loads increased due to rising interest rates, the move will ease their fears about their liquidity.
Anil Agarwal, the Indian billionaire who heads the mining and metals group Vedanta Resources, has announced the payback of $800 million in loans, which is considered a significant start toward lowering the company’s debt load.
Vedanta Resources pays back StanChart’s loans of $800 million
The loan was initially taken out in 2018 to pay for the purchase of the insolvent Indian steel manufacturer Electrosteel Steels. The purchase was a component of Vedanta’s plan to increase its presence in the Indian steel industry. Although the corporation tried to incorporate the new acquisition into its current operations, the move caused a significant increase in debt for the business.
The business, which has operations in Australia, Africa, and India, had been put under pressure to lower its debt, which totaled $7.8 billion as of March 2021. The $800 million loan will be repaid, dramatically reducing the debt and strengthening the company’s financial condition.
The company’s credit ratings could “come under pressure,” according to a renowned rating agency if it is unable to raise $2 billion and/or sell its foreign zinc assets. The company had offered Hindustan Zinc (of which Vedanta owns 65%) about $3 billion in exchange for its international zinc operations.
The government, which owns a 29.54% stake in HZL, objected to the acquisition because it would interfere with its share sale strategy and be a related party transaction. However, the business insisted that it had sufficient resources to cover its debt repayment obligations in the upcoming quarters. In response to increased refinancing risks in significant debt maturities, Moody’s Investors Service lowered Vedanta Resources’ corporate family rating last Friday from B3 to Caa1.
In light of the increased scrutiny the business is receiving from investors and environmental organizations regarding its operations in India, Vedanta has decided to repay the debt. Particularly in the state of Odisha, where it runs a sizable aluminum refinery, the firm has been charged with environmental legislation violations and environmental harm.
Vedanta, meanwhile, has denied any wrongdoing and stated that the company is dedicated to environmentally friendly and sustainable mining methods. The business has improved its environmental performance by investing in renewable energy projects and lowering its carbon footprint, among other things.
Despite these initiatives, Vedanta nevertheless encounters opposition from local communities and environmental organizations who are worried about the effects of its operations on the environment and local citizens’ health.
Vedanta has faced difficulties with the environment in addition to the COVID-19 epidemic, which has affected company operations and decreased consumer interest in its goods. The company, however, has stated that it continues to be upbeat about the long-term prospects for the mining and metals sector and is investing in new initiatives and technology.
Vedanta Resources has relied on sizable dividends from its Indian subsidiaries, which reached record levels in the most recent fiscal year, to pay its short-term obligations. The mining giant’s ability to service its dollar notes due this month and an even larger debt load due in 2024, when over $2 billion in bonds are set to mature, is suddenly the subject of the market’s attention.
For Vedanta, the repayment of the $800 million loan is a step that will likely help the business lower its debt load and strengthen its financial situation. However, the business still has a lot of obstacles to overcome, especially in terms of environmental performance and community relations. It’s unclear how Vedanta will respond to these difficulties and whether it will be able to reclaim its former prominence.
“Vedanta Resources out of the waters for now”
According to Vedanta Resources, all loan payments due during the current cycle have been made, and no balance is owed. An encumbrance on all shares was subsequently released. As pressure on low-rated debtors with high debt loads increased as a result of rising interest rates, the action will allay concerns about the company’s liquidity.
Proofread & Published By Naveenika Chauhan
