Vedanta: Large Indian Unity Dividend Boosts Vedanta Resources Refinancing Efforts : Moody’s

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A large dividend from its cash-rich Indian operating subsidiary has boosted billionaire Anil Agarwal’s Vedanta Resources Ltd efforts to refinance debt, Moody’s Investors Service said Monday.

On April 28, 2022, mining company Vedanta Ltd announced that its board had approved an interim dividend of Rs 11,710 crore (USD 1.56 billion) of which USD 1.02 billion will be received by its holding company Vedanta Resources Limited (VRL).

VRL owns 69.7% of Vedanta Ltd.

“The large cash dividend is positive for VRL as it avoids some of the liquidity and refinancing risk associated with the holding company’s debt maturities in the first half of the year ending March 31, 2023 (fiscal year 2023 ),” Moody’s said in an issuer comment.

At the same time, VRL has launched a tender offer to purchase for cash up to $500 million of its $1 billion senior unsecured notes due July 2022.

The bonds will be redeemed at par, if the bonds are tendered before the early tender deadline of May 11, 2022.

Alternatively, they will be purchased at a 2% discount on their face value for bonds deposited after the expiry of the early bid deadline on May 11, but deposited before May 25, 2022.

“Materials of VRL’s $4 billion debt for FY2023 include $2.75 billion at the holding company level alone, with the remaining $1.3 billion in various operating subsidiaries,” Moody’s said.

Of the holding company’s $2.75 billion in debt maturities, $2.1 billion is due between April and September 2022 and the remaining $650 million is repayable during the rest of the year.

VRL’s cash needs also include the repayment of a $300 million intercompany loan in the first quarter of fiscal 2023 and a large interest bill that has climbed to $800 million per year.

“Vedanta Ltd’s expected $1 billion dividend will therefore only help to alleviate some of the company’s immediate cash needs,” he said.

Although Vedanta Ltd’s large cash dividend is credit positive, VRL’s negative rating outlook remains unchanged due to its still large cash requirements for the remainder of the year.

“We estimate that the dividends just announced and certain new bank loans and refinancings will help the holding company meet its cash requirements in the first half of fiscal 2023, but not beyond, indicating that , in our view, liquidity risk will remain persistent.

“VRL also has an additional $2.9 billion in debt maturities in fiscal year 2024,” he said.

Dividends from its cash-rich and relatively low-leverage operating subsidiaries and regular reliance on bank loans will remain relevant, particularly in an environment of tight liquidity in capital markets and widening US dollar bond yields existing VRLs.

“VRL is weakly positioned at a corporate family rating of B2, as evidenced by its negative outlook, which results from the tight liquidity of the holding company. Absent its low liquidity, VRL’s operations are well positioned with favorable underlying demand and supportive commodity prices continues to generate positive free cash flow,” the rating agency said.

In fiscal 2022, Vedanta Ltd, which accounts for much of the entire profit generated by VRL, generated operating EBITDA of $6 billion, up 66% from $3.6 billion in the Previous exercice.

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