Vedanta Is In Negotiations With International Banks Over A $500 Million Loan.

According to two persons familiar with the situation, Anil Agarwal’s Vedanta Resources Ltd (VRL) is in talks with Deutsche Bank and other global lenders like JPMorgan and Barclays to raise $500-600 million in debt repayments later in May. VRL, based in London, makes efforts to borrow money through its Zinc International subsidiary. It has commenced conversations with banks to seek other financing options following delays in receiving cash from Farallon Capital Management. On May 31, a $500 million repayment is due on a 7.125% bond.

Vedanta has been actively negotiating with Farallon since mid-February for a $1.25-1.5 bn loan to Zinc International. 

However, the financing is subject to securing any guarantee from Vedanta Ltd, VRL’s India-listed subsidiary, which caused delays. Vedanta is now in talks with other sources of raising funds to get a smaller loan than Farallon provided.

Why Vedanta is shifting towards a bank loan?

Compared to the interest rate a credit fund pays, a bank loan is more cost-effective. Also, according to a bond dealer, VRL bonds slid a cent in overnight trading due to a lack of movement in the refinancing discussions with Farallon.

According to persons familiar with the situation, banks have tried to levy a Secured Overnight Financing Rate (SOFR) + 800 bps. The current SOFR is 5.06%. VRL had been in talks with global banks to raise $1 billion, but the business had decreased its expectations owing to the high-interest rate. Banks have also focussed on the importance of a guarantee from Vedanta Ltd for a larger loan, regarding which the latter has asked for clearance from the Reserve Bank of India.

The firm has talked with lenders and credit funds about refinancing $1.8 billion in June quarter debt obligations. It depended on unit distributions to cover $400 million in April repayments. In April, VRL received around $600 million dividends from Hindustan Zinc (HZL). Following the end-of-month payment in May, the next significant payment is a $300 million inter-company loan in June. Another $200 million in interest payments is expected in the June quarter.

VRL holds a $1 billion bond that will mature in January 2024. According to S&P Global Ratings, proactive refinancing of the January 2024 bond at least six months before maturity is critical for maintaining the bond’s grade. Persistent refinancing requirements remain a credit and rating restriction, particularly with dwindling internal resources. VRL’s $500 million senior unsecured notes, which mature in May and carry a 7.125% interest rate, were indicated at 97/98 cents. The $1 billion bonds with a yield of 13.875% due in January 2024 were shown at 83.5/84 cents.

Sonal Shrivastava was named Vedanta’s new Chief Financial Officer earlier this week. She will begin working for the firm on June 1, 2023. Also, Vedanta Ltd recently told the stock exchanges that its BODs would meet on Monday to evaluate and approve its first interim dividend for FY24, which might help its London-based parent satisfy its approaching debt commitments. The dividend record date has been established on May 30.

In FY23, VDL spent 37,730 crores on dividends, primarily to assist parent VRL. Analysts have warned that VDL’s and its subsidiary Hindustan Zinc’s leverage may increase due to the substantial dividend outflows in the earlier fiscal year to support VRL. The cashflow needs are estimated to be over $1 billion in Q1FY24E, meaning a payment risk of $33 per share, according to Investec analysts led by Ritesh Shah in recent research. Critics anticipate this will be supported mainly by VRL’s brand fees and dividend distributions.

Conclusion.

They frequently interact with investors, bankers, and financiers in doing business. This is only natural for a growing firm wanting to expand. As a transparent firm, Vedanta has always disclosed investment after it has been finalised and will continue to do so, according to a Vedanta representative.

Proofread & Published By Naveenika Chauhan