Vedanta Resources: A $2.5 bn debt bill shows risks ahead for Anil Agarwal’s Vedanta Resources

Written by Swansea Afonso and Divya Patel

A moment of reckoning approaches For Vedanta Resources Ltd. Indian billionaire miner Anil Agarwal has $500m in debt to pay on May 31, and another $2bn due in 2024 – a record annual bill for the company. While the May bonds trade at par, pricing data on some other bonds suggests that investors have concerns about future payments.

Vedanta Resources is classified as junk, but most of the group’s business is profitable. The dispute revolves around the money that the group companies regularly send to the London-based parent company. As the commodity company presses to reduce its debt and loans and bonds repaid in April, its reliance on dividend payments has caused subsidiaries’ cash reserves to dwindle.

Vedanta has borrowed $250 million to refinance debt from Glencore International AG, its latest in a series of efforts to find funds. The miner also signed a five-year, $850 million loan with JPMorgan Chase & Co and Oaktree, according to people familiar with the matter.

Vedanta dollar notes due Wednesday are trading at 99.4 cents on the dollar, indicating confidence in the market that they will be repaid.

How much debt does Vedanta owe?

Vedanta Resources has achieved 75% of its goal to reduce debt by $4 billion in three years and had total debt of $6.8 billion at the end of April.

The company said deleveraging in the future will depend on its operating performance and commodity prices. In May, the company repaid another $800 million in loans.

Why focus on the company’s ability to repay debt now?

Financing debt payments may become more difficult for the company now that multiple dividend payments over the past year have drawn down the cash reserves in its units. Vedanta Ltd paid five dividends totaling about 377 billion rupees ($4.6 billion) in the financial year ending in March, and awarded Hindustan Zinc Ltd. Four dividends during this period.

Cash reserves as of March at both subsidiaries fell to the lowest level since at least June 2020, and Hindustan Zinc’s debt exceeded cash flow for the first time. Lower metal prices can also impair profitability.

What is at stake for Vedanta?

Agarwal aims to expand the business to areas of priority to Indian Prime Minister Narendra Modi. The businessman’s holding company, Vulcan Investments, has teamed up with Taiwan’s Hon Hai Precision Industries to build a $19 billion semiconductor plant in Gujarat.

How are the company’s bonds doing?

Among its five dollar notes due, Vedanta Resources’ debt due in August 2024 and April 2026 is trading around or below 70 cents on the dollar, a level generally considered depressing. Notes due in March 2025 are approaching this level, indicating investor concerns.

How did the company become such a big player?

Agarwal, who grew up in the Indian state of Bihar, took over his father’s business manufacturing aluminum conductors in the 1970s and then branched out into the scrap metal business.

He built Vedanta Ltd. Through a series of ambitious acquisitions: In 2001, Agarwal bought a controlling stake in the then government-owned Bharat Aluminum and followed that up with the purchase of another state-run company, Hindustan Zinc. Successfully bid for iron ore producer Sesa Goa Ltd. in 2007 and for Cairn India. Vedanta Resources also has copper and zinc operations in Africa.

The company was the first in India to list in London in 2003, before Agarwal took it on 15 years later when minority investor Volcan Investments was bought out as part of efforts to streamline the group’s structure.

How is his business now?

Most of Agarwal’s businesses are profitable. His cash cow is Hindustan Zinc, which is backed by lead-zinc mines in Rajasthan, and has contributed half of Vedanta Ltd.’s profits. in the quarter ending in December. It also produces silver as a substitute for gold, of which India is the second largest consumer in the world. Oil, gas and aluminum combined make up most of the rest of the profits. Its aluminum unit is the largest producer of the metal in India.

What measures did Agarwal take to get more cash?

The crux of Agarwal’s problem is that every time a dividend is sent, some of the money goes to outside investors. Vedanta Resources attempted to acquire Vedanta Limited, but the plan was thwarted by minority shareholders.