Corporate Grapevine     

Published: April 15, 2024
Updated: April 15, 2024

Debt hassles for Vedanta

Is the worst behind Vedanta? Analysts believe that’s the case for Anil Agarwal- owned Vedanta Resources, the unlisted holding company, after its bond restructuring. But analysts expect VRL’s funding access to remain constrained, the interest burden to remain elevated, and the company to face funding shortfalls of $850 million (manageable) and $1.4 billion in FY25 and FY26 respectively.

In India, BSE-listed Vedanta Ltd’s debt will be divided amongst its demerged companies in proportion to their respective book asset values.

Vedanta has said it aims to value the assets of its demerged entities by their book values. While this is a relatively straightforward approach, analysts say that book values are captured at a point in time, and may not accurately reflect future profitability and cash flow generation of the business.

BANKERS WORRY

Bankers and analysts are also uncertain on how Vedanta will decide and allocate which specific debt sits under which entity; the same predicament applies to its secured bonds issued at the Vedanta level. For VRL’s dollar bondholders, the main concern will be what happens to their India-listed shares.

The small advantage that investors of VRL’s dollar onds hold are in the form of better equity price discovery for individual businesses, potentially higher value unlocked through equity listing and the potential for stake sales to realize cash proceeds which could be applied for deleveraging by VRL.

Overall, analysts continue to assign a low likelihood for the demerger to complete successfully amid anticipated difficulties in obtaining the necessary creditor approvals, considering the various uncertainties and challenges involved.