Vedanta Resources’ $2 bn net debt reduction in line with analyst expectations

Dividend payments and the sale of the international zinc business are expected to aid the remaining debt repayment.

Vedanta Resources’ announcement of net debt repayment of $2 billion in the current financial year is already estimated and factored in, analysts said.

Dividend payments and the sale of the international zinc business are expected to aid the remaining debt repayment.

The deleveraging is significant in the context of new investments planned. The parent company said the next phase of growth will be at the associated companies’ level – spanning semiconductors, display glass, renewables and optical fibre and transmissions. The semiconductor project alone will entail an investment of Rs 1.54 lakh crore, in a joint venture with Taiwan-based Foxconn.

On February 15, Vedanta Resources announced it has reduced its net debt by $2 billion in the current financial year ahead of its target. “Thus achieving half of its $4 billion three-year debt reduction commitment in the first year alone,” a company release said.

In a results note on the company in January, analysts with Motilal Oswal noted that the management is committed to repaying/refinancing the entire amount over the next three years at the holding company level and has already deleveraged $1.7 billion year-to-date.

Deleveraging plans

On Wednesday, Vedanta Resources said during FY24/FY25 it will continue to deleverage from net debt of $7.7 billion as it plans to cover 50 percent of FY24 liquidity requirements internally and the balance through re-financing.

“The number (of debt reduction) announced on Wednesday is in line with what was shared as estimates earlier. So no surprises there. Most of the debt repayment has been met through dividend payments from the Indian entity Vedanta Ltd. Sale of the international zinc business to Hindustan Zinc will further help to meet debt obligation and the target to reduce debt at the parent level by $4 billion,” said Kunal Kothari, Research Analyst - Metals & Mining, Centrum Broking.

Zinc business sale

In January, Vedanta Ltd announced board approval to sell its zinc international assets held under its wholly-owned subsidiary THL Zinc Ventures (Mauritius) to a proposed wholly-owned subsidiary of Hindustan Zinc for $2.98 billion. On the Q3FY23 earnings call, analysts raised concerns over a pending government clearance for the sale while the company management said they expected approval this time.

Also  Read: Vedanta to use $2.9 billion proceeds from zinc asset sale for deleveraging, other purposes

In a June 2022 concall for Q1 earnings, the company had spelt out the debt reduction plan and declared a dividend of almost $1.5 billion to its shareholders. “Vedanta Resources received almost $1 billion, which has been utilised to deleverage the balance sheet by almost a billion, $932 million to be precise. We remain committed to deleveraging Vedanta Resources of $4 billion over the next 3 years,” the management had said in the call.