Vedanta Resources in Talks with Private Investment Funds to Raise Up to $1.5B 3Y Loan to Refinance Debt, Price Talk 14% to 15%; Some Vedanta Lenders Not Comfortable With Use of General Reserve Cash to Pay Dividends; Vedanta Resources to Dip Into HZL Cash to Meet Near-Term Debt Obligations

Vedanta Resources Ltd., or VRL, has reached out to as many as five private investment funds, including special situations funds, to raise around $1.25 billion to $1.5 billion debt at Vedanta Holdings Mauritius II Ltd., a 100% subsidiary of VRL, to refinance the Oaktree Capital Management loan, as well as its other upcoming debt maturities, three sources close to the situation said. The company expects to close syndication of the loan within the next two to four weeks, the sources said.

The plan is that the new syndicated facility, which the company intends to raise at Vedanta Holdings Mauritius II, will be guaranteed by two other subsidiaries of VRL, namely Westglobe Ltd. and Finsider International, the first two sources said. The loan is likely to be a three-year bullet, the first two sources said, adding that the pricing could be around 14%-15%. A

Shares of Vedanta Holdings Mauritius II are likely to be 100% pledged as part of the security cover, the first two sources said. Additionally, a non-disposal undertaking would be created on the shares held by Vedanta Holdings Mauritius II and Finsider International in Vedanta Ltd., or VDL, VRL’s Indian listco, as part of the security package, the first two sources said.

Vedanta Holdings Mauritius II holds a 13.26% stake in VDL, while Finsider International owns a 4.4% stake in VDL, company data on the BSE Ltd. shows. Currently, the $750 million Oaktree loan note sits at Vedanta Holdings Mauritius II, Westglobe and Finsider (together referred to as the Oaktree box), as reported.

While VRL seems confident about successfully closing the syndicated loan deal with the funds involved in the ongoing discussions, existing debt investors and banks of VRL remain unsure about the company’s ability to tie up a sum over $1 billion at a “reasonable” pricing, the second and third sources said.

Slow Progress on Bank Loans

The company, running on a tight timeline to raise funds to meet its upcoming debt maturities, is prioritizing the refinancing of the Oaktree loan note and upsizing the debt at the Oaktree box, the second source said. VRL has also been trying to raise loans from state-owned banks in India but has not been able to achieve loan closures with ease, as reported.

VRL now expects to raise $300 million to $400 million from state-owned banks by the end of February, the second source said, adding that loans from the banks may close after VRL ends up tapping other sources of funding, including the loan under discussion with funds as well as the dividend from cash rich subsidiary, Hindustan Zinc Ltd., or HZL. The company is hoping to raise the loans from state-owned banks at a pricing of around 10%, the first two sources said.

In the first and second quarter of fiscal year ending March 31, 2023, VRL was able to raise loans from the state-owned banks at a pricing of 8.5%, as reported.

Bank sources have noted separately to Reorg that rising interest rates are expected to be increasingly passed along to borrowers, but VRL’s increased cost of raising funds from the market also goes back to its Moody’s downgrade on Oct. 31. The rating agency downgraded VRL’s corporate family rating to ‘B3’ from ‘B2’ and the rating on its senior unsecured bonds totalling $900 million due in April and May 2023 to Caa1 from B3 after the company decided to defer a tender process and could not come up with a long-term refinancing plan for the bonds, as reported.

VRL issued a rebuttal on Nov. 1 stating that it viewed Moody’s opinion as “excessively pessimistic”, and announced on Nov. 3 that it had given notice to Moody’s to discontinue its ratings engagement. But as Reorg has reported, withdrawal of a credit rating after a downgrade is marked as a red flag by credit appraisal committees within banks, and could lead to pricing on the loans going up 100bps to 200bps, though it will not ultimately hamper the company’s ability to raise loans.

HZL Cash Utilization

VDL is trying to implement a scheme of arrangement for capital reorganization of the company through the transfer of general reserves, with accumulated cash of around INR 125.87 billion ($1.54 billion), to the retained earnings of the company, as reported. This would allow the company to distribute the accumulated cash in the general reserves as dividends to shareholders with ease, as reported.

VDL had been trying to get an exemption from the National Company Law Tribunal, or NCLT, from seeking the approval of banks and secured creditors for the transfer of funds from the general reserves to retained earnings, company management told investors during its earnings call on Oct. 28.

However, some banks have expressed discomfort with respect to the company seeking such an exemption from the NCLT, the second and third source said, adding that the company is trying to convince the banks but will now require approval from its lenders. Stock exchanges BSE Ltd. and NSE Ltd, Indian markets regulator Securities and Exchange Board of India and VDL’s shareholders have approved the scheme, as reported.

With multiple fundraising transactions in the works yet to see closure, and the delay in getting NCLT approval to use VDL’s cash, VRL intends to dip into HZL’s cash to meet its debt maturities in the current quarter ending March 31, 2023, the second and third source said. Late in the evening on Jan. 16, HZL announced to the BSE Ltd. that its board would meet on Jan. 19 to consider a third interim dividend on its equity shares, if any, for the financial year ending March 31, 2023.

VRL has a total of $500 million in principal and interest due for repayment in the current quarter including, the second source said.

VRL’s debt maturities from January 2023 to June 2023 stand at around $2.5 billion, which include its $400 million 8% bonds due April 2023 and $500 million 7.125% bonds due May 2023, as reported.
During an earnings call on Dec. 15, management of VRL said that about $1 billion of these upcoming maturities will be repaid using $300 million from brand fees expected to be received in the first quarter, ending June 30, of the next fiscal year and $700 million from dividends to be paid by VDL, as reported.

A Vedanta spokesperson did not respond to an email and calls requesting comment.

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--Malvika Joshi