Bond investors appear bearish on Vedanta Resources

Furthermore, New Delhi’s decision to sell its residual stake in

may also prompt the resources conglomerate to raise more funds to purchase a portion of state equity even though the government is likely to sell its ownership in the open market. Hindustan Zinc was purchased by the Vedanta Group during the first round of privatizations two decades ago.

Earlier on May 26,

Chairman and billionaire Anil Agarwal told ET that Vedanta would look into buying an incremental 5% stake in Hindustan Zinc from the government, but the rest of the sovereign stake will be sold in the open market.



Vedanta, however, said recent high yields don’t reflect its weak credit credentials, attributing the surge instead to current market conditions. The metals conglomerate said it has actually reduced its refinancing costs.

Leaner Balance Sheet

“As markets improve, coupled with the deleveraging target we have already committed to, the deleveraging we have already achieved in the current fiscal, and the financing we have already tied up in Q1 this fiscal at VRL, we expect to see a major correction in our bond yields,” a spokesperson said in response to ET’s queries.

Yields recorded in secondary-market trades ranged upward of 13% in the past two to three months across maturities, showed data from BondEvalue, a Singapore-based firm.

The latest Bloomberg data on Monday compiled by ETIG, updated until June 20, showed that six series of bonds maturing between April 2023 and August 2024 are yielding in the range of 6.85-18.68%.

Bond yields and prices are inversely correlated.

Yields on the resources holding company rated B- or B2, may not be directly comparable with yields in its listed Indian entities. Yet, they are significantly higher than the average of Asia high-yield bonds, now at 10%, said overseas dealers.

VRL has set a target of $4 billion by way of deleveraging in the next three years. It has reduced more than $1 billion in the June quarter of FY23. Vedanta is also seeking to monetize a copper smelter that has remained shut following opposition from green activists and pressure groups.

Vedanta has never defaulted on repayments toward outstanding bonds.

“Investors aren’t worried; we have already taken care of our near-term maturities, and investors are appreciative of the same,” said the company spokesperson. The company is engaging with key bond investors.

On April 28, the Mumbai-listed

(VDL) approved an interim dividend of $1.56 billion, of which $1.02 billion will be received by its holding company Vedanta Resources which owns 69.7% of VDL.

‘Dividend Credit Positive’
“The large cash dividend is credit positive for VRL because it staves off some of the liquidity and refinancing risk tied to the holding company’s debt maturities in the first half of the fiscal year (FY23),” Moody’s said in a note.

Globally, Anglo American Plc, Fortescue Metals, Freeport McMoran Inc and Teck Resources are VRL’s peers. Those companies are rated a few notches higher than Vedanta Resources. Bonds sold by those peers (excluding Teck Resources) with maturity in 2024 are yielding in the range of 4.49-5.4%, showed data from BondEvalue.

The company has repayment commitments of $2.5 billion until July. For the rest of the fiscal year, the obligation is pegged at $700 million. It has tied up $750 million in new financing. “We are also in advanced stages of talks to close competitively priced long-term financing with a few other relationship banks,” the spokesperson said.

“We just raised a $500-million 5-year loan from one of our relationship banks at very competitive pricing,” he said without specifying details of price comparisons. The yields also reflect a lower global appetite for risk assets.

“Against the backdrop of diminished risk appetite, global investors have become a lot more discerning,” said Hemant Mishr, co-founder and CIO at SCUBE Capital, a Singapore-based global fund. “Companies with high leverage and lack of free cash flow visibility and ability to refinance are under stress.”