Anil Agarwal’s natural resources company Vedanta Ltd may offer an inter-corporate loan to the Singapore-listed Vedanta Resources Ltd (VRL) to help pay off debt, after its bid to delist from the exchanges failed, said two people aware of the discussions, requesting anonymity. The company may also explore the option of bringing in a strategic investor for an equity stake, they said.
Earlier this month, Vedanta’s voluntary delisting bid failed after it could not get the minimum number of bids required from its minority shareholders to take it private. If Vedanta had completed the delisting process, it would have given the company complete control of its cash-rich subsidiary, Hindustan Zinc Ltd (HZL), given that VRL has debt of more than $6.7 billion (about ₹40,000 crore).
In a workaround, on Tuesday, Hindustan Zinc reported an interim dividend payout of ₹9,000 crore, at ₹21.30 a share, or 1.065% of its face value. Vedanta holds a 64.92% stake in HZL.
“Vedanta can use the cash moved from Hindustan Zinc into an intercorporate loan to VRL,” said one of the persons mentioned above. “While this keeps to the letter of the law, it may not go down very well with minority investors,” the person said.
Agarwal needs to quickly find a solution to either refinance or repay some of VRL’s debt. On Tuesday, overseas credit ratings agencies S&P Global and Moody’s placed VRL’s ratings under review for downgrade. “The review follows an increase in refinancing risk and significant funding needs at the holding company level, following Vedanta Resources’ failure to acquire the balance shareholding in key subsidiary Vedanta Ltd that would have improved access to group cash,” said Kaustubh Chaubal, vice-president and senior credit officer, Moody’s.
Moody’s had said in August that if Vedanta had gone private, VRL would have paid off at least $2 billion of its outstanding debt and brought down its consolidated leverage to the 5-times mark. Instead, on Tuesday, Moody’s said with the failed delisting, VRL’s and Agarwal family firm Volcan Investment’s liquidity risk has increased with around $2.9 billion in debt maturities between April 2020 and March 2022, and annual interest payments of $470 million each year.
“In hindsight, it’s now clear that Vedanta tried to delist when the market had hit a bottom and shareholders were not willing to let go at that price,” the person quoted above said. “An inter-corporate loan to VRL may solve the immediate problem and Vedanta had chosen this route in the past with Cairn India. On the bright side, we’re also seeing global lenders being very generous to large corporate borrowers, none of whom would want to force a default because it would reflect on their books as well. So, Agarwal has time on his side,” said the other person.
In response to Mint’s queries, a Vedanta spokesperson said: “We wish to reiterate our unflinching commitment to India, particularly in the natural resources sector. We are confident that Vedanta Ltd will continue to grow from strength to strength as a listed entity on the Indian stock exchanges.”
