Vedanta Resources' liquidity hinges on fund-raising: S&P
Debt repayments during this period include USD 300 million of inter-company loans and USD 350 million to two relationship banks.
Mining billionaire Anil Agarwal-led Vedanta Resources' liquidity will depend on a USD 2 billion fundraising exercise and the proposed sale of international zinc assets to Hindustan Zinc Ltd, S&P Global Ratings said. The rating on Vedanta Resources will likely come under immediate pressure if neither of these transactions progresses over the coming weeks, S&P said in a report.
"The next few weeks will be crucial for Vedanta Resources Ltd. The company is highly likely to meet its obligations until September 2023. "However, sustaining liquidity beyond that would depend on the completion of at least one of two key ongoing transactions: a targeted USD 2 billion fundraising exercise, and a proposed sale of international zinc assets by Vedanta Ltd (Vedanta Resources has 70 per cent stake) to Hindustan Zinc Ltd (Vedanta Ltd. Has 65 per cent ownership)," it said.
The government is reportedly averse to Vedanta Resources' proposal to sell its international zinc assets for nearly USD 3 billion to Indian subsidiary Hindustan Zinc (HZL). Valuation of the assets is among several concerns flagged by the government, which holds a 29.54 per cent stake in HZL, which was privatised more than two decades ago. S&P said Vedanta Resources is fully funded until March 2023, following a dividend declared by Vedanta Ltd in January.
"We estimate further dividends from Vedanta Ltd, together with management fees, can be used to meet about USD 1.5 billion of the USD 2 billion the parent requires between April and June, including inter-company loans and interest expenses," it said. Vedanta Resources has debt maturities of only USD 15 million between July and September. Therefore, Vedanta Resources will need to raise a minimum of about USD 500 million to meet its obligations until June.
Debt repayments during this period include USD 300 million of inter-company loans and USD 350 million to two relationship banks. "We believe these offer the company some funding flexibility," S&P said. In the absence of significant fundraising, Vedanta Resources will be left with very little cash, of about USD 500 million, following the repayments.
This will make external funding critical for debt maturities after September, which include USD 500 million of loan repayments in the quarter ending December 31, 2023, and a USD 1 billion bond in January 2024.
"This is where the company's ability to close the USD 2 billion fund raising over the next few weeks is critical. If the company raises at least USD 1.75 billion as targeted, it will be fully funded until January 2024.
"In this scenario, it will also have low dependence on dividends from Vedanta Ltd until December; the cash that will be retained will support the refinancing of the January 2024 maturity," the rating agency said. The zinc transaction, if completed, would be equally positive. Vedanta Resources would potentially have about USD 2 billion of liquidity available following the transaction.
"However, we believe the execution risk of this transaction is higher, due to the uncertainty over the outcome of the shareholder vote. We would factor in the proceeds of this transaction only once there is certainty around its completion," it added.
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