Vedanta faces investor reckoning over $3.2 billion of bonds

Vedanta Resources seeks approval for a proposal to revise the terms of its dollar bonds to cut its debt load. The miner is offering to pay $779 million for notes due this year and 2025, and plans to extend the maturity on the remaining principal. S&P Global cut Vedanta's rating to CC and expects good earnings and strong cash flows.

Bondholders are recommended to give their consent for the amendments, but S&P Global is skeptical about the lack of adequate compensation for the extension of maturities. Vedanta's ability to honor its $1 billion bond due January 21 is in question. Vedanta Resources Ltd faces a moment of reckoning this week as Indian billionaire Anil Agarwal ’s miner seeks approval for a proposal that could help it buy more time to honor its debt liabilities.

Bondholders have until Jan. 2 to give an early consent on a plan to push out due dates on $3.2 billion in bond repayments, a move that prompted S&P Global Ratings in December to cut the company’s rating deeper into junk. Vedanta needs a green light from at least two thirds of the bondholders in each of the three securities to proceed with the plan.

A holder meeting will be held on January 4. The bid to revise the terms of its dollar bonds marks the latest attempt by Agarwal’s group to bolster its balance sheet, having already sold a stake in its Mumbai listed subsidiary and secured a $1.25 billion private loan. But the fact Vedanta borrowed money at 18% to refinance debt underscores concerns about its finances.

What is Vedanta’s latest proposal to cut its debt load? The miner is offering to pay $779 million by early February for notes due this year and 2025, and plans to extend the maturity on the remaining principal by as many as four years. There is no proposed change to the principal amount or the coupon on notes due in April 2026.

The miner is seeking approval to revise the fixed charge coverage ratio, a leverage covenant. What are S&P Global and bondholders saying? S&P cut Vedanta Resources’ rating to CC from CCC, saying the move will likely result in a downgrade to selective default. Still, it expects “good earnings and strong cash flows” at the group as commodity prices improve and its Indian units send back $400 million $500 million in dividends each year — a key source of funds for the UK based parent.

A group of adhoc holders of the company’s guaranteed notes have said that the firm didn’t include any feedback from them, and therefore the proposal doesn’t represent the best terms possible for the notes. Vedanta responded saying that it has engaged with many noteholders before arriving at the plan.

The miner also extended consent deadline for all the three dollar bonds by a few days to accommodate feedback from bondholders who were facing operational challenges amid year end holidays. What should bondholders do? Research firm CreditSights recommends bondholders give their consents for the amendments because the revised terms are more attractive.

But S&P Global is skeptical. That’s because Vedanta hasn’t provided adequate compensation for the extension of maturities, the ratings assessor said. The company is also prioritizing cash flows and proceeds from asset sales to meet obligations from the $1.25 billion credit facility over the other creditors, S&P added.

If Vedanta fails to get the required support, the focus will shift to the company’s ability to honor its $1 billion bond due January 21. The dollar notes due this month were the most supportive of the firm’s liability management exercise, while the remaining three trade below the 80 cents on the dollar mark often considered indicative of distress.

Some Vedanta Bonds Trade in Distressed Territory Still, the bond due in August 2024 rose 3.5 cents on the dollar in December to 66.4 cents, according to Bloomberg compiled data. That’s the biggest monthly gain since September. Those on March 2025 notes advanced 3.1 cents to 74.4 cents. How did the company become such a big player? Agarwal, who was raised in the Indian state of Bihar, took over his father’s business making aluminum conductors in the 1970s, and then branched into trading scrap metal.

He built Vedanta Ltd. through a series of ambitious acquisitions: In 2001, Agarwal bought a controlling stake in then government owned Bharat Aluminium Co. and he followed that up with the purchase of another state run firm, Hindustan Zinc. He successfully bid for iron ore producer Sesa Goa Ltd. in 2007 and for Cairn India.

Vedanta Resources also owns copper and zinc operations in Africa. The company was the first in India to list in London back in 2003, before Agarwal took it private 15 years later when his Vedanta Inc. bought out minority investors as part of efforts to streamline the group’s structure. Agarwal has renamed Volcan Investments Ltd.

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