Mining mogul Anil Agarwal-led Vedanta Resources Ltd will likely have enough liquidity until December 2023, rating agency S&P Global Ratings said on Monday.
The natural resources group has debt servicing obligations of about $3 billion, including interest and inter-company loans. It will have at least another $1 billion obligation that would require funding until March 2024.
Vedanta Resources is the parent company of Vedanta Ltd, which recently declared the fifth interim dividend for 2022-23 fiscal.
In its latest bulletin, the rating agency said that: “Vedanta Resources Ltd will likely have enough liquidity until December 2023. The group is close to securing about $1 billion of funding at one of its operating companies.”
The company is reportedly discussing with banks and investors multiple funding options for at least another $2 billion.
S&P in its note said: “Successful closure of some of these discussions will facilitate the payment of its $1 billion bond due January 2024. Failure to demonstrate a credible refinancing plan at least six months before the bond maturity could lead to downside rating pressure.”
It added that its B- rating on Vedanta Resources with a stable outlook “reflects its expectation the company will secure additional funds to support liquidity beyond December 2023”.
The rating agency estimated that Vedanta Ltd had consolidated cash of about $2.5 billion as of March 31, 2023, down from around $4 billion as of March 31, 2022. The company will use $930 million of this to pay dividends in April.
The rating agency added that failure to demonstrate a credible refinancing plan at least six months before the bond maturity could lead to downside rating pressure. “We also believe Vedanta Resources will not undertake any transaction that we would regard as distressed,” S&P said.
The rating agency noted that Vedanta Resources’ funding initiatives are supported by its capacity to borrow at its subsidiary, Twin Star Holdings Ltd. The latter directly owns a 46 per cent stake in the operating company, Vedanta Ltd.
According to S&P, Vedanta Resources has been more successful in the past in raising debt at the Twin Star-level, given the structural seniority of Twin Star debt to Vedanta Resources debt.
Vedanta Resources’ $1 billion bond maturing in January is also part of the debt at Twin Star. Its $400-million bank loan maturing during the year is also part of the debt at intermediate holding companies, Twin Star, and Vedanta Netherlands Investments B.V.
“Vedanta Resources has been more successful in the past in raising debt at the Twin Star level, given the structural seniority of Twin Star debt to Vedanta Resources debt.
“We estimate Twin Star has the capacity to raise about $500 million under its debt covenants,” the rating agency said.
“Although Vedanta Resources has a track record of raising funds in stressed market conditions and is willing to raise expensive debt to refinance, constant refinancing risk continues to hold back the company’s credit profile,” it further noted.
However, S&P said that Vedanta Resources will become more dependent on external funding and this is due to declining cash at the company’s operating subsidiaries, which has generally been a source of credit strength.
Also read: BYJU’S raises $700 mn at a valuation of $22 bn: report
Also read: Hindustan Zinc, Sanofi, Coal India among top 7 stocks with a dividend yield of up to 26%
Also read: Vedanta: Dividends that Anil Agarwal firm announced in FY23 so far; dividend history & more