Vedanta secures $1.25B for debt refinancing; S&P downgrades rating

Vedanta Resources Ltd (VRL), the UK-headquartered parent company of Vedanta Group, said it has secured a $1.25 billion loan from private credit lenders to refinance/repay part of the $3.2 billion debt maturing in 2024 and 2025, but this did not prevent S&P Global from downgrading its ratings.

In a statement, Vedanta Resources said the fundraising will help "create a long-term sustainable capital structure" and demonstrate its continued ability to access global capital markets and investor confidence in the underlying business.

Without disclosing the names of the lenders, it said loans have been raised from a group of reputable financial institutions to refinance existing liabilities.

In parallel, the company is seeking the consent of existing bondholders to extend the debt maturity, amend certain covenants, and seek waivers to improve the credit package of its bonds that are due to mature in 2024.

Unimpressed, S&P Global downgraded Vedanta Resources to 'CC' from 'CCC' on potential bond extensions and continues to keep it on the CreditWatch Negative list.

"The successful completion of a liability management exercise initiated by Vedanta Resources Ltd to extend the maturities of three of its US dollar-denominated bonds will constitute a distressed exchange under our criteria," the rating agency said.

In case the UK-incorporated commodity producer does not proceed with the transaction, S&P saw rising risks of a conventional payment default. This is given $1 billion in bonds due on January 21, 2024, and limited progress on alternate repayment plans.

"We view Vedanta Resources' proposed liability management exercise involving three of its US dollar-denominated bonds totalling $3.2 billion as a distressed transaction under our criteria," it said.

The company intends to address the three bond maturities using a mix of cash and new bonds as part of the exercise. Accordingly, it will exchange about half of the January 2024 bond with new bonds maturing in January 2027 and most of the August 2024 and March 2025 bonds with new amortizing bonds maturing in December 2028.

Vedanta Resources did not say if the new $1.25 billion credit was aimed at addressing these three loans maturing next year.

S&P said the company has about $4.5 billion in debt maturities through March 2025.

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On the new $1.25 billion credit facility, the rating agency said it did not regard attributes of the transaction -- such as higher coupons on the August 2024 bond and March 2025 bonds, and certain additional structural enhancements on the bonds -- as providing adequate offsetting compensation for the extension of the maturities. "This is because the transaction also gives priority to the sizable cash flow and proceeds from asset sales to a new $1.25 billion private credit facility over the other creditors."

"As part of the transaction, the private credit facility will have priority access to brand fee payments by subsidiary Vedanta Ltd to Vedanta Resources.

"While the group has securitized the brand fee payments to other lending facilities since late 2021, we believe the quantum of the brand fee and its proportion to the total cash flow available to Vedanta Resources to service debt will represent 40-50% of the total cash flow at Vedanta Resources, excluding extraordinary dividends. This is up from less than 20% previously," it said.

In addition, until $750 million of the private credit facility is repaid, it will have priority over extraordinary dividends that any asset sales at Vedanta Ltd could generate. The group will thereafter distribute proceeds equally between the private credit facility and bondholders until it fully repays the private credit facility.

"Furthermore, unlike numerous similar transactions globally, there are no haircuts on the principal or coupon amounts of the three bonds, indicating Vedanta Resources' willingness to pay. The new notes will have a coupon of 13.875%," it added.

In the statement, Vedanta Resources said the new loan will mature in April 2026, and is guaranteed by it and its various subsidiaries. It has been collateralised by a negative pledge of 13.26% shares held by the parent in India-listed Vedanta Ltd and the annual brand fee it receives from various subsidiaries.

Vedanta Resources, Vedanta Resources Finance II, Twin Star Holdings and Welter Trading announced the proposed restructuring of four sets of bonds - $1 billion of debt due January 2024, $1 billion due in August 2024, $1.2 billion due in March 2025 and $600 million due in 2026.

Billionaire Anil Agarwal's Vedanta Resources had earlier said that is looking to refinance $3.8 billion worth of bonds maturing between 2024 and 2026 with loans of extended maturities and manageable size.

The mining conglomerate has about $1 billion of bonds maturing in January next year, followed by a similar size coming up for payment in August 2024. Another $1.2 billion bonds are due in March 2025 and another $600 million in April 2026.