Mining billionaire Anil Agarwal-led Vedanta Resources’ liquidity will depend on a $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 $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.
However, sources said the government has opposed Hindustan Zinc’s plan to buy the overseas asset of its parent firm Vedanta Ltd, worth $2.98 billion.
The source further said “the ownership of both the companies lies with Vedanta. Therefore, there is no need to buy the overseas asset”.
Valuation of the assets is among several concerns flagged by the government, which holds a 29.54 per cent stake in HZL, that 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 $1.5 billion of the $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 $15 million between July and September.
Therefore, Vedanta Resources will need to raise a minimum of about $500 million to meet its obligations until June.
Debt repayments during this period include $300 million of inter-company loans and $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 $500 million, following the repayments.
This will make external funding critical for debt maturities after September, which include $500 million of loan repayments in the quarter ending December 31, 2023, and a $1 billion bond in January 2024.
“This is where the company’s ability to close the $2 billion fund raising over the next few weeks is critical. If the company raises at least $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.
