Vedanta Resources is negotiating a $500 million loan with Cerberus and Varde

2 Nov 2023 , 02:33 PM

The parent company of the Mumbai-listed company Vedanta, Vedanta Resources (VRL) in the UK, has started talks with Cerberus Capital Management and Varde Partners for a $500 million loan that will help fulfill a $1 billion payback obligation in January.

In addition to these two private credit funds, VRL is negotiating the remaining $500 million to $600 million with Standard Chartered Bank and other credit funds.

The loan will probably bear interest in the high teens and have a term of fewer than three years.

‘ The new loan is expected to be raised at a significantly higher interest rate, around 17-18%, compared with prepayments from Oaktree and Trafigura, which were below 13%,’ according to a source. ‘This new financing would be utilised for the prepayment of 55% of the 13.875% bonds due in 2024, 5% of 6.125% bonds maturing in August 2024, and 20% of the 8.95% bonds set to mature in March 2025.’

A smaller loan package of $1 billion and $1.1 billion secured over the following three years against trademark fee receivables would be offered. VRL has been receiving management and brand fees from India-listed Vedanta. The local business increased these costs from 2% to 3% of revenue in April 2023, giving VRL around $410 million in upfront fees for FY24.

Vedanta had originally suggested a $1.2 billion loan, but lenders and private credit funds have reduced that amount to a $1.1 billion agreement.

Although some bondholders have indicated that they intend to proceed with a $550 million upfront payment by January 2024, plus an additional $100 million in consent fees, which together represent 65% of the bond’s total value, discussions regarding the final restructuring terms under the liability management exercise are currently underway between the company and the bondholders.

Lenders are negotiating the details of the proposed loan and anticipate pricing in the upper teens.

It is planned for brand fee receivables to finance the proposed loan. For January 2024 bonds, 5% for August 2020 bonds, and 20% for March 2025 bonds, the business has proposed upfront payments of 55%. There is disagreement among bondholders, too, as some have called for higher payouts, especially in light of growing consent fees that would reduce the payout for January 2024 notes to 65 cents.

The source also stated that as part of the restructuring, a 3% consent fee, or around $100 million, is being given. The restructured bonds are anticipated to have collateral ranging from 75% to 200% and an interest rate of 14%.

Concerns over the high cost of restructured bonds are raised by the restructuring and the issuing of new loans at a time when the interest rate cycle is almost at its peak.

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