Vedanta Faces Critical Decision on Debt Repayment Plan as Bondholders' Approval Deadline Nears

2 Jan 2024 , 01:34 PM

This week, Vedanta Resources Ltd. will have to make a decision as the miner owned by Indian  Anil Agarwal requests approval for a plan that would give it additional time to pay down its debt.

Bondholders can provide early permission on a request to postpone the $3.2 billion in bond repayments until January 2. This action led S&P Global Ratings to further downgrade the company’s junk rating in December.

To move forward with the plan, Vedanta needs approval from at least two-thirds of the bondholders in each of the three instruments. On January 4, there will be a holder meeting.

Following the sale of a portion of its Mumbai-listed subsidiary and the acquisition of a $1.25 billion private loan, Agarwal’s business is making another attempt to strengthen its balance sheet with the proposal to amend the conditions of its dollar bonds. However, Vedanta’s decision to refinance debt at an 18% interest rate raises questions about its financial stability.

For notes due in this year and in 2025, the miner is willing to pay $779 million by early February. The remaining principal will have its maturity extended by up to four years.

The consent exercise structure that is available on the Vedanta website is as follows.

The principal amount and the coupon on notes due in April 2026 are not being changed. The miner is requesting permission to update a leverage covenant known as the fixed charge coverage ratio.

S&P downgraded Vedanta Resources from CCC to CC, indicating that a downgrade to selected default is likely to follow. But even with improved commodity prices and its Indian units returning $400 million to $500 million in dividends annually, which is a significant source of funding for the UK-based parent, it anticipates ‘good earnings and strong cash flows’ at the firm.

The updated terms are more appealing, thus research firm CreditSights advises bondholders to approve the changes.

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