Billionaire Anil Agarwal will seek shareholders' approval to tap Vedanta's cash reserves

Billionaire Anil Agarwal will seek shareholders' approval to tap Vedanta's cash reserves

If Vedanta Resources gets the dividend, it would allow it to issue a tender offer for at least a $900 million portion of the notes due in 2023, which are trading at about 94 cents on the dollar.



• Shareholders of Indian entity Vedanta Ltd. will vote on the company's plan to move money from its reserves to its balance sheet on October 11.


Billionaire Anil Agarwal's Vedanta Resources Ltd. will next week seek shareholder approval for a plan that could boost cash flow and help boost bonds next year, even as credit markets shore up their debt. indicate long-term concern about

Shareholders of Indian entity Vedanta Ltd. will vote on the company's plan to move money from its reserves and into its balance sheet on October 11, raising the possibility that the money will be used for dividends.

Dividends from the unit have recently become a major source of funding for the London-based parent to pay off its debt. If Vedanta Resources gets the dividend, it would allow it to issue a tender offer for at least a $900 million portion of the notes due in 2023, which are trading at about 94 cents on the dollar. This is in contrast to the prices of dollar securities maturing in 2024, which are indicative of around 61 cents. Levels below 70 cents are generally considered distressed.

It is a reckoning moment for Agarwal, 68, who got his start as a scrap metal trader and over two decades has built a commodities empire that is India's largest producer of aluminum and zinc. Hon Hai Precision Industries, one of Agarwal's close firms, is also working with the company, which assembles most of the world's iPhones, to build a chipmaking facility in the state of Gujarat.

But the group's rapid expansion, including acquisitions of metals companies, has left it with a debt load of $11.7 billion, and Moody's Investors Service noted its "persistently weak liquidity" in an August report. Receiving dividend payments can help allay investor concerns. In the near future.

AK Prabhakar, Head of Research, IDBI Capital Market Services Ltd., said, "There is a high probability of shareholders approving transfer of cash from ordinary reserves to retained earnings as there is a possibility of dividend payment." "Transparency has always been an issue with Vedanta but also for its aggressiveness and dividend paying ability to new investors like the company."

Haitong International Asset Management Limited holds certain Vedanta Resources bonds. Fund manager Sunny Jiang said there is little chance that the company can either withdraw the notes this year or issue a partial or full buyback offer for the bonds due next year.

Vedanta Resources is in a "very comfortable position" to meet all of its debt obligations, the company said by email, and declined to comment on the possibility of buying back the bonds due next year.

Investor panic about Vedanta Resources is nothing new and its bond yields hit double digits in 2020. However, recovery in profits due to rising demand after the pandemic and several years of high metal prices eased concerns over its ability to meet debt obligations. ,

How did the company get so big?

Vedanta Resources was the first Indian business to be listed in London in 2003, before Agarwal took it private 15 years later, when his Volcan Investments Ltd bought minority investors as part of efforts to streamline the group's structure.

The Mumbai-listed entity Vedanta Ltd. was built on a series of ambitious acquisitions by Agarwal: in 2001, he bought control of the state-owned Bharat Aluminum Company, one of the first tests of India's efforts to unload the state's holdings. . Agarwal then bought another state-run firm Hindustan Zinc Limited. He successfully bid for iron ore producers Sesa Goa Ltd and Cairn India in 2007, despite having no oil and gas experience. Vedanta Resources also has copper and zinc businesses in Africa.

Vedanta Resources has tried to take the Indian entity private in the past to exercise greater control over cash flows, but the plan was scuttled by minority shareholders.

What is happening now?

Vedanta Resources holds around 70% stake in the Indian unit. According to Bloomberg Intelligence, Vedanta Resources received a total dividend of $1.5 billion from Vedanta Ltd in the fiscal year ended March, up from an additional $932 million in April. In July, Vedanta Ltd. announced another dividend of close to $1 billion. However there are concerns that the risk of an economic downturn could put more pressure on commodity prices, and could affect its ability to pass on large dividends.

As of March 31, 2021, the unit had normal reserves of 125.9 billion rupees ($1.5 billion), according to the company's latest data. The company had cash and equivalents of around Rs 343.4 billion as of June 30, the company's filings show.

What are the stakeholders saying?

The company's liquidity and complex corporate structure are major concerns for strategists and bondholders. Most have ruled out the possibility that Vedanta Resources will exercise a call option on its two notes of $2024 denomination this quarter, amounting to $2 billion as the securities are trading below par.

The rising cost of issuing new debt and expanding finances of the company are the major reasons cited as to why it cannot repay its debt at the first opportunity.

Trung Nguyen, Senior Credit Analyst, Lucror Analytics Pte, said, “The chances of Vedanta calling the notes are very slim. Access to capital is difficult at this point of time. Thus, Vedanta will struggle to find the cash to call the notes. "

This story has been published without modification in text from a wire agency feed. Only the title has been changed.