Billionaire Anil Agarwal’sVedanta Resources Ltd. will seek shareholder approval next week for a plan that could boost cash flow and help boost bonds maturing next year, even as credit markets signal long-term concerns about the company’s debt. surname.
Shareholders of the Indian unit Vedanta Ltd. 11 will vote on the company’s plan to move money out of its reserves and onto its balance sheet, increasing the likelihood that the funds will be used for dividends.
Dividends from the unit have recently become a major source of money for the London-based parent company to repay. If Vedanta Resources does indeed receive a dividend, that would allow it to make a tender offer for at least a portion of the $900 million bond due in 2023, which trades at about 94 cents a. with dollars. That contrasts with the price of its dollar security maturing in 2024, which points to around 61 cents. Levels below 70 cents are generally considered distressing.
It was a moment of contemplation for Agarwal, 68, who started out as a scrap metal trader and built a commodities empire over two decades as a producer of aluminum and India’s largest zinc. One of Agarwal’s closest companies is also working with Hon Hai Precision Industry Co., the assembler of most of the world’s iPhones, to build a chip manufacturing facility in the state of Gujarat.
But the group’s rapid expansion, including acquisitions of metals companies, has left it with $11.7 billion in debt, and Moody’s Investors Service noted “persistently weak liquidity” in a report. August. Receiving a dividend payment can help ease investors’ concerns about their finances in the near term.
AK Prabhakar, head of research at IDBI Capital Market Services Ltd., said: “It is more likely that shareholders will adopt a cash move from general reserves to retained earnings because of their ability to pay. dividend. problems with Vedanta but new investors like the company for its aggressiveness and ability to pay dividends. “
Haitong International Asset Management Ltd. holds some bonds of Vedanta Resources. Fund manager Sunny Jiang said the possibility that the company could call back the bonds this year or make an offer to buy back part or all of the bonds due next year in the case of Vedanta Ltd. announced another big dividend.
The company said via email that Vedanta Resources is in a “very comfortable position” to meet all of its debt obligations and declined to comment on the company’s ability to buy back bonds maturing next year.
Investor anxiety about Vedanta Resources isn’t new, and its bond yields jumped to double digits in 2020. Profits rebounded, however, on the back of explosive post-pandemic demand. and years of high metal prices have allayed concerns about the company’s ability to meet its debt obligations. .
How did the company become so big?
Vedanta Resources was the first Indian company listed in London in 2003, before Agarwal went private 15 years later when Volcan Investments Ltd. his acquisition of minority investors as part of an effort to streamline the group’s structure.
Mumbai-listed entity Vedanta Ltd. built on a series of ambitious acquisitions by Agarwal: In 2001, he bought control of the government-owned Bharat Aluminum Company when it was one of the first tests of the Indian endeavor. Degree to reduce state shares. Agarwal then bought another state-owned company, Hindustan Zinc Ltd. Britain has successfully bid for iron ore producer Sesa Goa Ltd. in 2007 and for Cairn India, despite having no experience in oil and gas. Vedanta Resources also owns copper and zinc mining operations in Africa.
In the past, Vedanta Resources has tried to bring the Indian private unit out to better control cash flow but this plan has been thwarted by minority shareholders.
What is happening now?
Vedanta Resources holds about 70% of the Indian unit. According to Bloomberg Intelligence, the dividend for Vedanta Resources from Vedanta Ltd. worth approximately $1.5 billion in the financial year ending March, and an additional $932 million in April. In July, Vedanta Ltd. announced another dividend of nearly a billion dollars. Even so, there are concerns that recession risks could put more pressure on commodity prices and affect its ability to deliver larger dividends.
The unit has 125.9 billion rupees ($1.5 billion) in general reserves as of March 31, 2021, according to the latest company data. It also had cash and equivalents of about 343.4 billion rupees as of June 30, company filings show.
What are stakeholders saying?
A company’s liquidity and its complex structure are of great concern to strategists and bondholders. Most rule out the possibility that Vedanta Resources will exercise call options this quarter on two of the $2024 bills up to $2 billion because the securities are trading below par.
The high cost of issuing new debt and the company’s strained finances are the main reasons why a company may fail to repay its debt at the first opportunity.
“The probability of Vedanta calling money is very low,” said Trung Nguyen, senior credit analyst at Lucor Analytics Pte. “Access to capital is very difficult at the moment. So Vedanta will struggle to find cash to call the bills. “