Vedanta Resources Struggles As It Rushes To Pay Off $2 Billion Debt Before Deadline

The commodities giant owned by Indian billionaire Anil Agarwal has reportedly cut its net debt by $2 billion. This move is seen as an attempt to address concerns among investors over Vedanta’s liquidity and its ability to fulfill upcoming obligations.

The company, which is involved in the production of metals such as zinc and copper, has been grappling with a high debt load for several years. As a result, it has been working on a strategy to reduce its debt burden and improve its financial health.

According to a company statement, the reduction in net debt was achieved through a combination of factors, including strong cash flow from operations, asset sales, and debt restructuring. The company has also been focusing on reducing its capital expenditure and optimizing its operations to improve efficiency and profitability.

The move to reduce debt comes amid a challenging environment for commodity producers, with prices for metals and other raw materials experiencing significant volatility in recent years. However, the company’s management remains optimistic about the future and believes that the measures taken to reduce debt will put it in a stronger position to weather any potential challenges.

In addition to reducing debt, the company has also been pursuing growth opportunities in new markets and investing in research and development to enhance its product offerings. With these initiatives, the company is confident that it can continue to deliver value to its shareholders and customers in the years ahead.

Commodities giant Vedanta Resources Ltd., owned by billionaire Anil Agarwal, has announced a reduction in net debt by $2 billion in the current financial year, in a move to alleviate concerns over the company’s liquidity and ability to pay upcoming obligations. The London-based firm revealed that it has already achieved half of its three-year debt reduction plan of $4 billion in the first year.

Vedanta Resources is committed to continuing to deleverage from net debt of $7.7 billion in the next two financial years, according to an exchange filing. The announcement follows warnings from S&P Global Ratings that the company’s debt scores could “come under pressure” if it fails to raise $2 billion and/or sell its international zinc assets. Without significant fundraising, Vedanta Resources risks being left with very little cash, the assessor said, adding that external funding will be “critical” for debt maturities after September.

In a recent statement, the commodities firm announced its plans to address its liquidity requirements for the next financial year. The company intends to cover 50% of these needs internally, with the remaining half to be covered through refinancing.

The statement went on to explain that the commodities firm is experiencing strong cash flows, which are being fueled by robust consumption in India. This positive trend is contributing to the company’s ability to internally address a significant portion of their upcoming liquidity needs.

The firm’s announcement highlights the importance of financial planning and prudent management of resources to ensure continued success in a volatile market. By taking proactive steps to address their liquidity needs, the company is positioning itself for continued growth and stability.

Vedanta Resources, the parent company of Mumbai-based Vedanta Ltd which is listed on the London Stock Exchange, has reportedly enlisted the services of Cantor Fitzgerald, a US-based financial services firm, to assist in raising up to $2 billion through loan syndication. The funds will be used to service the company’s short-term debt maturities, according to sources familiar with the matter who spoke to ET.

The move comes as Vedanta Resources seeks to address its financial obligations and improve its cash position. With the assistance of Cantor Fitzgerald, the company hopes to secure the necessary funding to meet its short-term debt obligations and maintain its financial stability.

Vedanta Resources, which operates in the mining and metals industry, has faced significant challenges in recent years, including a decline in commodity prices and operational issues. The company has been working to restructure its operations and improve its financial position, and loan syndication is seen as a key step in that process.

The appointment of Cantor Fitzgerald, a well-respected financial services firm with extensive experience in loan syndication, is expected to bolster Vedanta Resources’ efforts to secure the necessary funds. The company is reportedly in discussions with a number of potential lenders and is expected to finalize the syndication in the coming weeks.

Overall, the loan syndication is a significant development for Vedanta Resources and underscores the company’s commitment to addressing its financial challenges and improving its long-term viability.

According to sources, in addition to a few international banks that have established business ties with Anil Agarwal’s mining and natural resources company, a number of significant global credit funds are in negotiations to provide funding for a potential transaction. Cantor Fitzgerald, headquartered in New York, offers a range of financial services to its clients all around the world, including the placement of high-yield and distressed debt. In a syndicated loan, a group of lenders offers a large borrower the loan.

According to a senior banker familiar with the ongoing negotiations, the talks are centered around the high cost of funds. “The market’s pricing expectation is currently in the mid-to-high teens, which is quite steep,” the banker stated. The company in question has yet to make a final decision on the matter.

As of press time on Wednesday, both Vedanta Resources and Cantor Fitzgerald had not responded to requests for comment.

According to a report released by S&P, Vedanta Resources will have to repay a debt of approximately $2 billion (equivalent to Rs 16,510 crore) between April and June 2021. The report suggests that Vedanta Resources will be able to obtain $1.5 billion through dividends from its subsidiaries, including Vedanta Ltd. However, to meet the remaining $500 million, the company will need to seek additional funding. The rating agency indicates that the company will need to secure these funds to service its debt obligation.

Vedanta Resources’ fundraising efforts have taken on added importance as the sale of its zinc assets has been thrown into doubt. Vedanta Ltd’s proposed sale of its zinc assets to subsidiary Hindustan Zinc Ltd (HZL) for $3 billion has reportedly faced objections from the Indian government, which holds a 29.54% stake in HZL. According to sources familiar with the matter, concerns over the valuation of the assets have been raised.

As a result, Vedanta Resources‘ fundraising efforts have become crucial to its financial well-being. Although the company’s balance sheet will be able to service its current debt obligations, analysts at S&P have warned that the absence of external funding will result in a liquidity crunch beyond September.

The fundraising campaign will be the second significant capital infusion for Vedanta Resources, following the sale of its zinc assets. The success of the campaign is essential for the company’s continued financial stability.

According to a report from S&P, Vedanta Resources is facing a severe cash shortage of around $500 million after paying off its loans. The report stated that if the company fails to raise funds, it will become critical for them to obtain external funding to cover the debt maturities that are due after September. The debts that require repayment include $500 million of loans by December 2023 and a $1 billion bond in January 2024. The company’s financial condition has raised concerns about its ability to meet its obligations, and it is imperative that they take necessary measures to secure external financing to fulfill its commitments.

Vedanta Resources’ decision to raise funds has been prompted by the need to secure the necessary financial resources to address the impending bond maturity. Despite the Moody’s downgrade, Vedanta remains optimistic about its ability to refinance the bond facilities and meet its obligations on time.

The move to terminate Moody’s services may have been due to a disagreement between the two entities over the rating action. However, Vedanta has not provided any official statement regarding the termination of Moody’s services.

Edited by Prakriti Arora