Vedanta Resources considers debt repayment through refinancing and brand monetization

19 Jun 2023 , 02:15 AM

According to news reports, Vedanta Resources is largely reliant on brand monetization, refinancing, and transfer of general reserves to retained earnings in order to meet its debt repayment deadlines.

Around $4.2 billion in total debt repayment falling due in FY24 In the first quarter, the company has already paid $2 billion of this. 

The royalty rate of the Indian-listed entity Vedanta Limited has increased this year from 2 % to 3 % in order to help tide over the repayment requirement.

Also, earlier this month, Vedanta Resources Ltd. (VRL) told investors that it had entered into a similar royalty agreement with Hindustan Zinc, which set the royalty percentage at 1.7%.

For FY24, VRL received a total of $413 million as a brand fee, as it collects about 3% of Vedanta Limited’s top line, excluding Hindustan Zinc.

In December 2020, three subsidiaries, Finsider International, Westglobe Ltd., and Vedanta Holdings Mauritius II, would encumber a 17% share in Vedanta Limited in order to repay a $1 billion loan from Oaktree Capital Management. Since a significant portion of the loan has been returned, the management has advised that some of the pledges is now eligible for refinancing. 

Of the $350 million still owed to Oaktree, $100 million is due in October, and $250 million is due in November. In addition to the opportunities of refinancing and upsizing the Oaktree bucket, as well as brand fees, the company has the option to cut dividends from its subsidiaries.

The company has the ability to stream up dividends from its subsidiaries in addition to the prospects from refinancing and sizing the Oaktree bucket as well as from brand fees.

Vedanta Resources had taken out a $850 million loan from JP Morgan and Oaktree at Zinc International, a fully owned subsidiary of Vedanta Ltd., earlier this quarter. The loan had a 36-month door-to-door term, with quarterly payments beginning in the 24th month.

The management of VRL emphasized that the $450 million in money it recently received from Glencore and Trafigura was part of ‘ordinary financing arrangements’ and had no connection to trade financing. Money from Glencore was borrowed for a period of 12 to 36 months at SOFR plus 5.5%.

According to the reports, lenders are in talks with Hindustan Zinc and Vedanta Ltd. about transferring general reserve to retained earnings, which will result in a larger dividend cap.

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