Vedanta slips to 14-month low ahead of key board meet
The shares of Vedanta Ltd, led by Anil Agarwal, have faced a significant decline in value, plunging to a level not seen in over fourteen months. This drop in stock price has unfolded in the lead-up to the company’s board meeting, which is slated for September 21. Currently, the stock is trading at Rs 229.50 on the Bombay Stock Exchange (BSE), marking a 1 percent decrease from its previous closing price.
This sharp decline in Vedanta’s stock performance is a cause for concern among investors and market participants. The stock has touched a low of Rs 227, a level it last reached back on July 15, 2022. Such a protracted period of underperformance underscores the challenges the company is currently facing.
The impending board meeting has likely cast a shadow over the stock, as these gatherings often involve crucial decisions and announcements that can have a significant impact on share prices. As a result, investors may be approaching the stock with caution, resulting in its decreased value.
Vedanta Ltd has also seen its stock plummet by over 25 percent since the beginning of the year. This poor performance is indicative of negative market sentiment towards the company. Factors contributing to this sentiment could include concerns about Vedanta’s financial performance, industry dynamics, and broader economic conditions.
In addition to the general stock market pressures, investors may have specific apprehensions about Vedanta’s business outlook, financial stability, or corporate governance practices. These concerns may be anticipated to be addressed or discussed in the forthcoming board meeting.
The future trajectory of Vedanta Ltd’s stock hinges on the outcomes of the upcoming board meeting and the company’s ability to address investor concerns while navigating the challenges present in its industry. Investors will be closely monitoring developments to gauge the company’s prospects moving forward.
During their upcoming board meeting, Vedanta Ltd is set to deliberate on the issuance of non-convertible debentures (NCDs) in a private placement, as part of their routine refinancing activities. NCDs are debt instruments that companies issue to raise funds from investors with the promise of periodic interest payments and repayment of the principal amount at maturity.
This move to issue NCDs aligns with Vedanta’s strategy to manage their financial obligations and secure capital for ongoing operations and expansion plans. However, what adds significance to this development is the context of their financial situation, particularly the impending bond repayments.
A recent report by Economic Times (ET) indicates that Vedanta Resources, the parent company of Vedanta Ltd, is actively engaged in advanced discussions with prominent global private credit funds, including Bain Capital, Davidson Kempner, Ares SSG Capital, and Cerberus Capital. The discussions revolve around arranging a substantial short-term loan amounting to $1 billion.
The urgency for securing this short-term loan likely stems from Vedanta Resources’ substantial bond repayments, totaling nearly $2 billion, expected in the financial year 2025. These bond repayments form a significant portion of the company’s overall debt repayment obligations, which are estimated at $3.6 billion for the upcoming financial year.
The potential issuance of NCDs in a private placement could serve a dual purpose for Vedanta. Firstly, it could provide them with an additional source of funding to manage their debt obligations, including the sizable bond repayments in FY25. Secondly, private placement of NCDs allows the company to tap into specific investors or funds, which can be advantageous in terms of interest rates and repayment terms.
In summary, Vedanta Ltd’s board meeting will address the issuance of NCDs as part of their regular financial activities, but the significance of this decision lies in its potential role in managing the substantial debt repayment obligations of Vedanta Resources, the parent company. The ongoing discussions with global private credit funds underscore the company’s efforts to secure short-term financing and navigate their financial challenges effectively.
Vedanta Resources finds itself in a precarious financial position, with Kotak Institutional Equities expressing deep concerns about the company’s challenges. High leverage and a looming $3 billion funding gap in the upcoming financial year (FY25) have prompted significant worries among market analysts. While Vedanta Resources has undertaken certain one-time measures, including a 6% stake sale in Vedanta, to address immediate funding shortfalls in FY24, the $2.2 billion bond maturity anticipated in FY25 represents a far more formidable financial obstacle.
The company’s reliance on dividends from its Indian subsidiary and Hindustan Zinc has been a pivotal source of funds. In FY2023, Vedanta Ltd. paid out a substantial dividend of Rs 101.5, even surpassing the proposed delisting price. However, Kotak analysts argue that sustaining such substantial dividends may no longer be feasible, which could necessitate the sale of more subsidiary stakes or assets.
Furthermore, the overall financial outlook for Vedanta Resources is clouded by unfavorable risks stemming from the challenging commodity cycle. In light of these concerns, Kotak Institutional Equities has maintained a ‘sell’ rating on Vedanta’s stock and reduced the target price by 7% due to an unfavorable risk-reward profile. Bloomberg data reflects limited optimism from other analysts, with only three out of 14 brokerages issuing a ‘buy’ rating. Five suggest ‘hold,’ while six recommend ‘sell’ for Vedanta’s stock, reflecting the widespread apprehension about the company’s financial stability and future prospects.
