Wednesday, November 30, 2022
HomeBusinessBillionaire Anil Agarwal to seek shareholders nod to tap Vedanta cash reserves

Billionaire Anil Agarwal to seek shareholders nod to tap Vedanta cash reserves

Shareholders of the Indian unit Vedanta Ltd. will vote on Oct. 11 on a business plan to move money from reserves to the balance sheet, increasing the likelihood that the money will be used for dividends.

Dividends from the unit have recently become a major source of funds for the London-based parent company to repay its debt. If Vedanta Resources receives a dividend, it would allow it to bid for at least a portion of $900 million worth of notes due in 2023, which trade at about 94 cents on the dollar. That contrasts with the prices on its dollar securities maturing in 2024, which are quoted around 61 cents. Levels below 70 cents are typically considered troubling.

It is a moment of reckoning for Agarwal, 68, who started out as a scrap metal merchant and over two decades built a commodities empire that is India’s largest producer of aluminum and zinc. One of Agarwal’s close-knit companies is also collaborating with Hon Hai Precision Industry Co., the assembler of most of the world’s iPhones, to build a chip factory in Gujarat state.

But the group’s rapid expansion, including acquisitions of metals companies, has led to $11.7 billion in debt, and Moody’s Investors Service noted its “consistently weak liquidity” in an August report. short-term.

“There is a high probability that shareholders will approve the shift of cash from general reserves to retained earnings as there is the possibility of dividend payments,” said AK Prabhakar, head of research at IDBI Capital Market Services Ltd. “Transparency is always an issue with Vedanta, but new investors love the company for its aggressiveness and ability to pay dividends.”

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Haitong International Asset Management Ltd. holds some bonds of Vedanta Resources. It sees a small possibility of the company calling back bonds this year or making a partial or full repurchase offer for bonds maturing next year in the event that Vedanta Ltd. announces another big dividend, said fund manager Sunny Jiang.

Vedanta Resources is in a “very comfortable position” to meet all of its debt obligations, the company said by email, declining to comment on the possibility of the company buying back bonds next year.

Investor nervousness about Vedanta Resources is not new and bond yields climbed to double digits in 2020. However, a recovery in earnings, driven by strong post-pandemic demand and multi-year high metal prices, eased concerns about its ability to meet its debt obligations. .

How did the company become so big?

Vedanta Resources was the first Indian company to go public in London in 2003, before Agarwal took it private 15 years later when his Volcan Investments Ltd. bought out minority investors as part of efforts to streamline the group’s structure.

The Mumbai-listed unit Vedanta Ltd. was built on a series of ambitious takeovers by Agarwal: in 2001 he bought control of the then state-owned Bharat Aluminum Co. in one of the first tests of India’s efforts to redeem state interests. Agarwal followed that up with the purchase of another state-owned company, Hindustan Zinc Ltd. He successfully bid on iron ore producer Sesa Goa Ltd. in 2007 and at Cairn India, despite having no oil and gas experience. Vedanta Resources also owns copper and zinc activities in Africa.

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Vedanta Resources has tried in the past to acquire the Indian unit to gain more control over cash flows, but the plan has been opposed by minority shareholders.

What happens now?

Vedanta Resources owns about 70% in Indian unit. The dividends to Vedanta Resources from Vedanta Ltd. totaled about $1.5 billion in the fiscal year ended March, with an additional $932 million in April, according to Bloomberg Intelligence. In July, Vedanta Ltd. a dividend of nearly $1 billion. However, there are concerns that the risk of an economic recession could put more pressure on commodity prices and affect the ability to pass on larger dividends.

The unit had 125.9 billion rupees ($1.5 billion) in general reserves as of March 31, 2021, according to the latest available company data. It also had cash and equivalents of about rupees 343.4 billion as of June 30, company files show.

What do stakeholders say?

The company’s liquidity and complicated corporate structure are major concerns for strategist and bondholders. Most have ruled out the possibility that Vedanta Resources will exercise call options this quarter on two of its $2 billion dollar-denominated bonds in 2024, as the securities are trading well below par.

The rising cost of issuing new debt and the company’s tight finances are the main reasons why it might not be able to pay off its debt at the earliest opportunity.

“The chances of Vedanta calling the notes are very low,” said Trung Nguyen, senior credit analyst at Lucror Analytics Pte. “Access to capital is currently difficult. So Vedanta would struggle to find cash to call the notes.”

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This story was published from a news agency feed with no text changes. Only the headline has been changed.

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