The implosion of the Adani group stocks following allegations of fraud has brought into focus the huge debt pile of Vedanta Resources, India’s biggest mining company.
The highly-leveraged Vedanta Resources has a market value of $13.23 billion but also huge payment obligations, including $1 billion in bond repayments due next January. The Mumbai-based company may have trimmed its net debt by $2 billion to $7.7 billion over the past 11 months, but that may not be enough.
Earlier this month, S&P Global Ratings said Vedanta’s ability to repay debt beyond September may depend on fundraising and a proposed sale of its South African zinc mines to Hindustan Zinc. If these deals don’t happen, the Anil Agarwal-owned firm will be in serious trouble.
By June this year, Vedanta Resources has to repay $300 million in inter-company loans and $350 million in interest to two banks. Vedanta, therefore, needs to raise at least $500 million by then.
It plans to deploy internal funds to meet half the requirements over the next financial year. It hopes to refinance the rest, according to a report by S&P Global Ratings.
“We estimate further dividends from Vedanta, together with management fees, can be used to meet about $1.5 billion of the $2 billion the parent requires between April and June, including inter-company loans and interest expenses,” the report said.
If Vedanta fails to raise funds by then, it will be left with a mere $500 million. That will just not be enough to repay $500 million in the December quarter and $1 billion in bonds in January 2024.
Vedanta Resources’ debt misery may have a potential solution in Hindustan Zinc. Agarwal’s company owns 65% of India’s largest lead and zinc miner, with a 29.5% stake lying with the Indian government.
Vedanta has been trying to offload some of its mines in South Africa and Namibia to raise around $3 billion over 18 months, with Hindustan Zinc as a potential buyer.
S&P Global Ratings believes Vedanta has no other option, and that a failure to see through the deal would result in a downgrade of its debt rating.
For cash-strapped Hindustan Zinc, however, this could be an expensive deal. The Indian government is also worried. “We would urge the company to explore other cashless methods for acquisition of these assets,” it said in a letter on Feb. 17.
The government is mulling legal avenues if Hindustan Zinc goes ahead with the purchase.
Since the announcement of the deal in January, fears of a cash wipeout have dragged down Hindustan Zinc’s shares by nearly 15%, the lowest level in a month. Vedanta’s share has slipped by 5% in the meantime.