Vedanta engages in discussions to secure up to $2.5 billion for repayment to international bondholders

Vedanta Resources Limited (VRL), a prominent diversified mining company headquartered in London, is in the final stages of devising a plan to raise up to $2.5 billion (approximately Rs 20,800 crore) to meet impending debt repayment deadlines. The company, led by billionaire Anil Agarwal, intends to use a multifaceted approach, including issuing preference shares in the holding company to offshore investors from West Asia and securing an additional loan to refinance older debts at a higher interest rate.

VRL, functioning as the group’s holding company, is also exploring the sale of a portion of its 63.71% stake in the Indian-listed subsidiary, Vedanta Ltd., to fulfill its funding requirements. The debt and equity transactions, set to be announced in November, aim to provide the group with the necessary funds to address maturing bonds scheduled for 2024.

Approximately $1 billion of VRL’s overseas bonds are set to mature on 21 January 2023, followed by $951 million of bonds maturing on 9 August 2023. Additionally, bond repayments of $1.2 billion are due in March 2025 and $600 million by April 2026.

Secured creditors of VRL have formed a distinct group from unsecured creditors to aggressively negotiate a more favorable package, reflecting their secured status during the bond restructuring process. Bonds maturing in January 2024 and March 2025 are guaranteed by the group’s other holding companies, Twin Star Holdings, and Welter Trading, in addition to a guarantee provided by the ultimate holding company, VRL. These bonds are further backed by shares of Vedanta Ltd., while the August 2024 bonds remain unsecured.

Notably, bondholders, including Oaktree Capital and Avenue Capital, have engaged London-based law firm Cleary Gottlieb Steen & Hamilton LLP as their legal advisor and lead negotiator with VRL. These bondholders are seeking a 75% upfront cash payment for the January 2024 bonds and a higher upfront amount for the March 2025 bonds.

Vedanta Group chairman Anil Agarwal has previously affirmed the group's commitment to avoiding any default on its loans. VRL successfully raised $1.35 billion in loans in the ongoing financial year, with significant contributions from JP Morgan, Oaktree, Glencore, and Trafigura, amid a challenging rising interest rate environment.

Simultaneously, Vedanta Ltd. is undergoing a demerger process, segregating its various businesses into six listed companies. Agarwal has pledged to sell the steel unit by March 2024 to facilitate debt repayment. However, the success of the demerger depends on the support of Indian lenders, who are seeking clarity on the cash flow of each unit and the listed entity responsible for repaying their loans. In the last two years, VRL has repaid a portion of its loans through dividends received from Vedanta Ltd. and its subsidiary, Hindustan Zinc Ltd. It's worth noting that the promoter's entire stake in both Indian-listed companies is currently pledged.