CreditSights 'watchful' of $4.2 billion term debt refinancing risk of Vedanta Resources

Anil Agarwal, promoter, Vedanta Resources

CreditSights, the Fitch Rating unit, stated on June 13 that it will closely monitor the risk of refinancing pertaining to Vedanta Resources Ltd's (VRL) term debt of $4.2 billion, which is scheduled to mature in FY24. According to CreditSights, VRL, the parent company of India-listed mining behemoth Vedanta Ltd, is expected to honor its debt obligations in their entirety within the coming 12 months.

The report comes after VRL raised around $450 million from two of its rivals, triggering concerns that the company is unable to raise money from regular debt channels and banks.

“We see lowered refinancing risk for VRL’s near-term debt maturities, aided by $1.3 bn of fresh loan fundraisings, the material release of pledged shares that allows room for additional debt, and a latest round of dividends from operating subsidiaries,” CreditSights said.

CreditSights said it maintains a ‘Buy’ recommendation on VRL’s bonds. It sees low refinance risk in the near term but is being watchful.

“Failure of refinancing talks or an inability to tie up funds for late-FY24 refinancing pose downside risks to our recommendation. As such we caveat that our ‘Buy’ recommendation is for investors with a high-risk appetite and that Vedanta's bond prices can be very volatile,” the report added.

If the refinancing is successful, as expected by CreditSights, the bond prices will rally by around 10-15 points broadly across the curve. If it fails, there may be a sharp sell-off in bond prices to around 50 cents to the dollar, the report said.

The promoter group pledged 4.4 percent of their holding in Vedanta for a $250 million loan from Switzerland-headquartered mining and natural resources rival Glencore International AG. It raised $200 million in finance from commodities trading company Trafigura Group.

On May 31, VRL said in a statement, it has repaid $400 million of loans, cutting gross debt to $6.4 billion. The company said it has paid all its maturing loans and bonds due in May and June 2023. The gross debt stood at $9.7 billion at the end of March 2022.

“Looking ahead, we expect VRL’s FY24 credit metrics to deteriorate slightly year on year, led by our expectations of lower commodity prices through the year. We note commodity prices have been fairly lackluster year-to-date seeing China’s post-Covid recovery has been largely services-driven,” the report said.

Responding to a query from Moneycontrol, a Vedanta spokesperson said, “Vedanta has been able to meet its debt maturity within timelines and is fully confident about servicing its debt on schedule.”