UPDATE 1: Vedanta Resources Attempting to Raise Funds at Zinc International to Meet Refinancing Needs as Oaktree Upsize Yet to Close; USD Bonds Down 3-5 Points Today, Feb. 27

UPDATE 1: 12:32 a.m. ET 2/27/2023: Vedanta Resources Ltd., or VRL, is exploring the option to raise between $750 million and $1 billion funds at Zinc International Ltd., a wholly owned offshore subsidiary of Vedanta Ltd. or VDL, VRL’s Indian listco, three sources close to the development said. Funds could eventually be upstreamed as a dividend to VRL, the sources said.

The move to raise funds at Zinc International comes as VRL is trying to meet its upcoming debt maturities of around $1.8 billion in the April-June quarter, and has yet to close any of the various loan transactions to meet its repayment needs which are under discussion, the sources said.

The debt raised at Zinc International would involve a guarantee from VDL, the second and third source said. Vedanta’s senior management also met the company’s relationship banks including Barclays, Deutsche Bank and JPMorgan last week to discuss the transaction, the third source said.

The discussions are at a preliminary stage, the first two sources said, adding that closing the transaction would depend on whether the banks are willing to take on additional exposure amid the refinancing risk overhang.

VRL’s USD bonds were indicated 3-5 points down across the curve today, Feb. 27, the sources said.

Barclays declined to comment. Vedanta Resources, Deutsche Bank and JPMorgan did not immediately respond to calls and emails requesting comment.

–Malvika Joshi, Dipika Lalwani

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Original Story 4:38 a.m. UTC on Feb. 23, 2023

Vedanta Resources Sounds International Banks to Raise $500M at Twinstar, as Credit Funds Seek Minimum 17% Pricing for $1.5B Private Debt 

Vedanta Resources Ltd. (VRL) has reached out to some of its international bank lenders to raise $500 million debt at its subsidiary Twinstar Holdings Ltd. through securitization of brand fee, to deal with upcoming loan maturities in the April-June quarter, two sources close said. VRL has reached out to Barclays Bank, Deutsche Bank, JPMorgan and Standard Chartered Bank to raise money at Twinstar, the sources said.

The development comes with VRL still trying to close loan deals with special situation funds and state-owned banks at its three other subsidiaries - Vedanta Holdings Mauritius II, Westglobe and Finsider - to raise $2 billion to refinance a $750 million loan from Oaktree Capital Management, and other upcoming debt maturities, as reported.

The London headquartered metals-to-mining company has also initiated discussions with the banks to request rollovers of loans due next quarter at its stepdown subsidiary Twinstar Holdings Ltd., the sources said, adding that the lenders are not comfortable allowing rollovers right now, given the size of the tightly spaced debt maturities: $1.8 billion is due in the April-June quarter, $600 million in the October-December quarter, and $1 billion in the January-March quarter.

VRL needs to repay $250 million to Standard Chartered Bank and $100 million to DBS Bank in the next quarter ending June 30, the sources said. During the April-June June quarter, the company needs to repay and/or refinance around $1.8 billion in debt, the sources said.

The combined overall debt ceiling at subsidiaries Twinstar Holdings and Welter Trading is around $3.1 billion, and available headroom would allow Vedanta to raise close to $250 million at the two subsidiaries, the sources said. Another $250 million which the company is trying to raise at VRL will go towards repayment of upcoming loan maturities, without breaching the debt ceiling, the sources said.

Apart from loans due for repayment to StanChart and DBS next quarter, the company has to repay its $400 million 8% bonds due April 2023 and $500 million 7.125% bonds due May 2023, as well as a $450 million inter-company loan from Cairn India Holdings Ltd., the sources said. It will also have to repay $250 million due on the Oaktree facility next quarter if the planned fundraising from special situations funds does not go through, the sources said.

Although $1.5 billion will be sufficient to meet the near-term debt maturities including the refinancing of its USD bonds totalling $900 million due in April and May, VRL is attempting to raise additional money to meet debt obligations post June as well, the sources said.

Meanwhile, the company continues to negotiate with special situations funds to raise $1.5 billion at Vedanta Holdings Mauritius II, Westglobe and Finsider (together referred to as the Oaktree box) to refinance a $750 million loan from Oaktree at these subsidiaries, the sources said, adding that the investors are unwilling to close the transaction at pricing of under 17% at the moment. Reorg had first reported that VRL is in talks with as many as five private funds to raise around $1.5 billion through a three-year term loan to take out the Oaktree facility and had been negotiating pricing of around 14%-15%. Reorg previously reported that Cantor Fitzgerald, a US based financial services firm, has been helping VRL to raise the money from the funds.

VRL had been trying to securitize the brand fee at the Oaktree box as well, the sources said , adding that it is now attempting to do that at Twinstar to raise funds. Without the brand fee securitization, the loan being raised from special situation funds is expected to lower at around $1.3 billion, the sources said.

During the earnings call of VRL on Dec. 15, the management said that the brand fee payout during the fiscal first quarter of 2024 ending on June 30 is expected to be around $300 million, as reported.

VRL had also been trying to negotiate a make-whole period shorter than 12 months with the funds, seeking more benign loan terms on the back of Hindustan Zinc Ltd.’s (HZL) proposed $2.981 billion acquisition of THL Zinc Ltd.Mauritius from VRL’s Indian listco, Vedanta Ltd. (VDL). However, the deal is expected to be on pause for some time, following stated opposition from the government - India’s Ministry of Mines, in a Feb. 20 announcement, said its nominees on the HZL board had dissented from the proposed deal and the Government of India will oppose any proposed resolutions in furtherance of the agenda. In its response, HZL noted the proposed deal is subject to shareholder approval, but that a shareholder meeting has not yet been called, as reported. The deal, which the sources said is unlikely to close within this quarter, would allow VDL to upstream the cash from the deal as a special dividend to VRL in proportion to VRL’s 69.69% shareholding in VDL, as reported.

While the company has also been trying to raise between $300 million to $500 million from state-owned banks since October within the Oaktree box, the progress on loan closures has been slow, as previously reported. S&P Global Ratings on a call on Feb. 8 said it will re-evaluate VRL’s rating profile in case the $2 billion fund raise does not close, according to sources who attended the call. The rating agency would also require a refinancing plan at least 6-9 months ahead of the $1 billion 13.875% bonds maturity in January, the sources said.
 

Reorg had reported that VRL may dip into HZL’s cash to meet its debt maturities. HZL this week notified the BSE Ltd. that it will be conducting a shareholder voting process to get approval to transfer INR 103.83 billion cash from its general reserves to retained earnings, as reported. The transfer will allow utilization of the cash transferred, if needed, to declare dividends to HZL shareholders including VDL and the dividend received by VDL can in turn be upstreamed to VRL in proportion to VRL’s shareholding in VDL which is 69.69%, as reported.

Barclays, DBS, Deutsche Bank and Standard Chartered spokespersons declined to comment. Oaktree, S&P, SSG Capital and Vedanta did not respond to emails and calls requesting comment.

Vedanta Resources' capital structure is below: 



–Malvika Joshi